When you look at your cash flow, you are looking at the relative amount of the money you bring as compared to what you spend over a given time period. It is very easy to calculate your cash flow on a monthly basis, as most major recurring expenses happen monthly. Keeping close taps on your personal cash flow is a essential step to financial well being
To calculate your cash flow, you simply compare all of your regular cash inflow (income) against your regular cash outflow (expenses). It is essential to only take into account your normal income and expenses, as “skewing” the numbers by taking one time receipts or expenses into account only cheats yourself. For most people, their major income is from their job, but if you receive regular payments from other sources, such as annuities, rents, of government benefits, these too should be included. Your expenses do not only include your basics like housing costs, transportation costs, utilities and the like, but should also include regular discretionary expenses as well. If you take your family out for a big dinner every week, this is a regular expense although it may be completely voluntary.
Once you subtract your monthly cash outflow from your monthly cash inflow, you have a basic assessment of your cash flow situation. If it is negative, it means that every month you are spending more than you are making and probably living beyond your means. People with a negative cash flow usually make up the difference through borrowing, either taking out non-revolving loans from banks or using their credit cards. If your cash flow is positive, it means that you are living within your means. The larger your positive balance is each month, the more financially secure you are.
Most people do not take the time to understand their cash flow, even though it is very simple. Many feel that they understand their financial situation, so this step is unnecessary. Looking at the numbers in black and white, however, is a great exercise in helping you determine if you need to change your behavior. A look at the numbers may lead you to curb your spending habits.
This is one of the simplest ways to determine your monthly cash flow. Whether you are doing well or not, you should always keep a close eye on your cash flow so that you can make adjustments as needed. A close eye should be keep on increases and decreased to both expenses and income. Later, you can use the information you found here to explore more complex metrics that will offer you a more detailed look at your financial situation.
Vincent Polisi is the founder of Finance the Dream and Credit Repair College. Finance the Dream helps people in all 50 states get into
rent to own homes. Credit Repair College empowers America's to take control of their financial future by learning about
fast credit repair, thrifty living and budgeting.
