A good personal cash flow management plan starts with a wireframe to organize your personal budget.
There are two types of personal cash flow you want to track: positive and negative. Positive cash flow covers all expenses while negative cash flow gets you into debt. The idea of a personal cash flow management system is to see where your exact cash flow lies and adjust accordingly. And, of course, the ultimate goal is to have a positive cash flow.
Below is a basic cash flow management wireframe. Use this as a template to create your own. Keep in mind that no one management plan will be the same, as no one person spends and earns the exact same amount of money. Yours most likely will be different.
If it is financial independence you seek, make sure your model includes savings as if it were an expense. Savings is an obligation to yourself and your future.
Income is the base of a Personal Cash Flow Management Plan. List all forms of income.
Salary is a set total amount to be paid to the employee over the course a year. Employees receive paycheck every week/bi-weekly/or monthly. The amount does not change if the worked hours increase or decrease.
Hourly is a set amount the employee is paid per hour of work. Employees receive a paycheck every week/bi-weekly/or monthly. The amount will fluctuate depending on the amount of hours worked and if the place of employment pays overtime (hours worked over a 40 hour work week).
A person is paid on a contractual basis with a company and is paid based on the contract decided between the contractor and company. Self-employed workers receive a 1099 for taxes, not a W-2.
Bonuses and Investments
Bonuses are at the discretion of the employer. Prudent cash flow management doesn’t include bonuses because they are not guaranteed. Investments may or may not provide immediate income. Depending on the investment whether structured as an equity or fixed income will determine how likely you can rely on the income for your cash flow management.
Once everything is on paper, it is easy to see where the budget needs to be tweaked and adjustments made.
Taxes (No explanation needed)
When creating a cash flow management plan, don’t be discouraged if it starts in the negative as evidenced by your wireframe.
The key is to understand how you are spending your money and determine what is essential, and what is luxury. Figure out which expenditures create happiness for you and which are adding more stress in your life.
There are many useful programs out there to help you be diligent on your spending, however, working with a financial planner will allow you to explore where improvements and changes can and should be made. You can create alerts on programs and send to your cell phone when you’ve maxed out on Starbuck’s or other luxury goods for the month, for example. If you don’t have the discipline to stick to the budget, make sure you take advantage of these tools or work with a financial planner that can keep you focused on your plan.
Now that you understand some of the basics of personal cash flow management, how about schedule some time with us to see how it could apply to your own situation?
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