No matter what financial position you are in, cash flow plays or played a key role in getting you where you are now. Cash flow, in reference to your financial plan, means the money that flows in and out on a regular basis. While the money that flows in is very telling of your financial situation, the money that flows out is even more so. An eye-opening exercise to try is comparing your overall income on a monthly basis to your overall expenses.
Click here for Trilogy’s Monthly Budgeting worksheet. This worksheet can help clarify cash outflows and shine a light on spending you may not remember off the top of your head. Once you’ve completed the worksheet and compiled all of your monthly expenses, rank them from most expensive to least expensive. This is fairly simple with fixed expenses like your mortgage, car insurance, home owner’s insurance, phone bill etc. It becomes a bit trickier with discretionary expenses like groceries, dining out, gifts, clothes, etc. but you can look through your last couple months of bank statements to come up with an average. Once you’ve ranked your expenses from most-to-least expensive, what does your cash-flow reveal about your priorities? Does your cash flow say that savings is important in your life? Is dining out more important than building your emergency fund or life insurance? What are your financial priorities and does your spending reflect that?
No matter how rudimentary or advanced your finances are, cash-flow is the area of any financial plan that most significantly affects all the others. Whether you make a six-figure salary or are earning minimum-wage, adjusting cash-flow is the first step in making change and progress in your long-term financial success. For most people, adjusting their income is to some extent out of their control, but adjusting discretionary cash expenditure is simply an exercise in motivation, self-discipline, and control. For example, if you cut out your morning Starbucks run, you could save $150/month. Or you can go every other day and save $75/month – it just depends how important that “morning joe” is to you and understanding that these daily expenses really do affect your long-term financial success.
Many people that seek financial planning are looking for an investment vehicle or technique to start solving their problems. The unfortunate truth is that the biggest work to be done revolves around cash-flow. It’s great if you can divert some of your monthly income to long-term priorities like retirement or protection, but the more difficult task at hand is diligence and accountability toward controlling how much money is going out , figuring out where it is going, and making the outflow representative of your financial goals. A qualified Decision Coach can help you better understand your cash flow and make it representative of your overall financial priorities.