Why You Need a Cash Flow Budget + How To Make One
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Cash flow. Budgets. Cash flow plan. Money. Cash flow statement.
What are these concepts and how do they apply to personal finance situations?
For many people, they just want to leave these things to those who love math. However, we all need to know the basics of a cash flow plan. Even the guru, Dave Ramsey stresses cash flow planning.
Don’t you want to know if you will run out of money ahead of time?!?! Wouldn’t that ease some stress in your life?
Plus it is way easier to do than you thought and there are cash flow budgeting examples below.
Typically, cash flow planning is found in the business world. It helps companies forecast whether or not they have the cash on hand to operate a business.
So, why can’t you use personal cash flow planning for your life?
There are absolutely zero reasons that cash flow planning cannot be used for personal reasons. It is not complicated to figure out. And for many people, once they understand the concepts, it helps budgeting become a piece of cake.
Personal cash flow budgeting made easy!
Personally, I was introduced to a written cash flow plan by my hubby. Once he laid out our finances that way, it made the whole concept of budgeting so much easier.
Right now, we are going to dig into cash flow planning and by the end, you will understand how to make a personal cash flow statement.
What is a Cash Flow Projection?
A cash flow projection is how you plan your money to move for the upcoming period. Specifically how your money will flow in and out of your checking account taking into account all of your income and expenses.
You can do a cash flow projection based on weekly, bi-weekly, monthly, or per paycheck. The choice is totally yours.
In the business world, they make cash flow projections over a period of 12 months. But, with personal finances, it is much harder to plan that far ahead because many things can change.
A cash flow projection is a best guess estimates on your money and where it is going for the selected period of time.
The other key aspect of a cash flow projection is it will identify any cash shortfalls during the month and at what times they may occur. Thus, you can adjust and plan for them in advance.
No more running out of money at the end of the month.
Related Reading…32+ Simple Hints Someone is Financially Stable + How You can be too!
What is a Cash Flow Budget?
A cash flow budget is a projection of the inflow (income) and outflows (expenses) in and out of your personal finances for a specified period of time. This written cash flow plan or statement will show what day the inflow (income) and outflow (expenses) will occur.
That is the “plan” of the cash flow plan.
Cash Flow Plan = Income – expenses (Key piece different than just budgeting is when they occur during the specified period.)
Don’t worry…there is an example below.
It can be called a cash flow projection or a cash flow plan. Call it what you want because at the end of the day it is the same concept. A written plan of the expected income and anticipated expenses coming in and out of your bank accounts during a specified time length.
A cash flow projection allows a glimpse into the upcoming month to see if there is enough cash on hand to meet your expenses.
The cash flow plan can be projected for a longer period of time if preferred. The upcoming month is crucial.
If you don’t use sinking funds, then a couple of months out is ideal. Anything beyond one to two years however will be taking on many assumptions and wouldn’t be recommended for personal cash flow planning.
In all honestly, a cash flow plan is like looking at how you spent last’s month money today. But, instead, you are looking at the upcoming month in your cash flow plan. Then, you can adjust where needed ahead of time!!
Advantages of Cash Flow Budgeting
There are many benefits to take your budgeting one step further by creating a cash flow plan.
The main advantage of using a cash flow plan is knowing your income is guaranteed to cover all expenses during the month.
For instance, most bills are due in the first part of the month. So, that is when money is the tightest. By utilizing a cash flow plan, you can manage your other bills to different parts of the month to help balance out.
Since a cash flow plan allows a glimpse into the future, you can make better projections about being able to save more money or spend less money.
Another advantage to a cash flow statement is breaking the living paycheck to paycheck cycle. By looking ahead, it is feasible to see when your money runs short. Then, you can figure out ahead of time how to make ends meet and change your spending habits ahead of time.
Overcoming the obstacle of how to create a personal cash flow plan is the hardest, the advantages of a cash flow plan will help your money goals and financial freedom sooner.
Another huge advantage of a cash flow plan is that it can be done per pay period. So, it works well for weekly, bi-weekly, or monthly budgeting purposes.
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How a Cash Flow Plan Differs from a Budget
By now, you may be asking, “isn’t a cash flow plan the same as a budget?.” If you google it, it may seem so. But, all of those resources are wrong. So so wrong!
A cash flow plan is a written plan of how and when you plan to spend money. A budget only covers what you plan to spend in a certain time frame.
Get the difference now?
A cash flow plan will help you to identify if cash gets low at a certain amount during the month.
A budget will only tell you than income minus expenses is zero.
To skyrocket your success with budgeting, a cash flow plan is necessary. Plus it will guarantee success with budgeting longer term. More or less, to know that at the end of the month you should have money leftover or if you planned to spend more than your income.
With your cash flow plan, you want to stay in the positive cash flow. If you dip into the negative area, then you have run out of money.
Without a cash flow plan, your budget would never be able to forecast out or look ahead like that. Then, you are left scrambling with overdraft fees or no money.
Allocated Spending Plan
The premise of an allocated spending plan is simple. You give all of the personal budget categories a job to do.
The definition of allocate is to distribute for a particular purpose.
For example, when starting to make a budget, one of the steps is to allocate your income across all the budget categories.
The purpose of an allocated spending plan is to deliberately set aside each month for a certain purpose.
You decide how and where to spend your money. Ahead of time, you prioritize where you want to spend money. That way the day-to-day decisions on spending are way easier because you have already decided where you plan to spend your money for the upcoming month.
Everyone is different, so their allocated spending plans will differ too. However, you can glean plenty of information by knowing the ideal household budget percentages.
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how to make a cash flow budget Plan
First, remember, you decide the length of time for your cash flow budgeting.
For us, a monthly cash flow plan is so crucial for our personal budgeting purposes. It allows me to see that all of our expenses will be covered. Honestly, it helps me become more comfortable, so I don’t need to check my bank balances every day to see that there is enough money.
I’m guessing that would help you to have less stress around money as well.
Now, the time has come to make your cash flow budgeting plan.
You get to tell your money where you want it to go ahead of time.
The steps to make a cash flow plan are pretty simple:
- Look at your “typical” budget that you have created.
- Put the income and expenses in order by the date they will be pulled from your account.
- Review to see when and where cash flow hits rock bottom.
- Make adjustments so you have a positive cash flow all month.
If you haven’t created your first budget, then go here and learn how to make a budget in 7 steps.
Remember the days of reconciling a bank statement?? It is pretty much the same concept except you are looking ahead into the future and not in the past.
Here is a Monthly Cash Flow Plan Example:
I’ll admit I’m more of a visual person. So, here is an example to help you see a cash flow budget in action.
You can find your personal cash flow template in our free resource library, too!
Here is a Yearly Cash Flow Budget Example:
As you can see in this example, there are two times throughout the year that is in the negative cash flow area.
Thus, adjustments need to be made in advance. So, you don’t run out of money.
Do I Need to Use Only Cash?
A common misconception is that you can only use cash for your cash flow plan. That is not true.
You can use any method of payment.
At the end of the day, you know that you can’t spend more than you allocated for a certain time frame in your cash flow plan.
While using cash may be easier for some, you can still use any method of payment and keep a written record of money spent.
Budget Tracker Apps to Make it Easier:
- Empower – Read my Empower Review
- Quicken – Read my Quicken review.
- Pocket Smith
- Tiller Money
- For a full list of budgeting apps
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
Making Cash Flow Budgeting A Reality
These personal cash flow forecasts will help you manage your money with confidence.
The honest truth is it is much better to know in advance of something happening rather than afterward. If you know in advance, then you can make adjustments where needed.
How to make it a reality…
Take action today and start creating a cash budget.
Don’t let it slip onto your to-do list and have it get forgotten.
Also, making a personal financial statement is an important step to take your finances further.
Once you get in the swing of things, it will help you find success with budgeting.
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Best Budgeting Apps - The Top 10
From all of the free and paid budgeting apps, here are our top budgeting apps to check out!
Quicken Personal Finance & Money Management Software
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
YNAB - You Need a Budget
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Change your relationship with money!
Personal Capital - Track Your Finances for FREE
Personal Capital is wealth management for the Internet Age. The online platform combines digital technology with highly personalized service to provide a holistic view of a unique financial picture (AKA your net worth).
Make sure to connect all of your accounts within 7 days to set up your Personal Financial dashboard.
Tiller: Your Financial Life in a Spreadsheet, Automatically
Tiller is the only tool that automatically updates Google Sheets and Microsoft Excel with your spending, transactions, and balances each day.
Start your free trial.
Qapital - Discover true money happiness
Automate your financial plan with set-and-forget money tools that fit right into your daily life.
That’s why Qapital puts your goals front and center, then helps you plan your spending, saving, and investing around them.
Manage your money less in 5 minutes each week. Reach your money goals with confidence! The personal finance app gives you something to look forward to.
"The easiest, most comprehensive way to both see where your money is going and plan for future expenses."
Your automated financial assistant and budget tracker are designed to put you back in control of your money.
Stay on top of your spending, easily track bills, cancel unwanted subscriptions, and find ways to improve!
The best personal finance software for all walks of life.
Forge your own financial path – they provide the tools.
Click here to get 50% off the PocketSmith Premium Monthly plan for the first two months.
Bee Saving with HoneyMoney
HoneyMoney increases your awareness about your money habits. Being fully aware of your money naturally changes how you spend it.
Great way to use cash flow budgeting. Plus uses "envelopes" to budget.
Start your free trial.
Moneyspire: Have total control over your financial life
Moneyspire is user-friendly personal finance and small business accounting software that brings your entire finances together in one place.
Have total control over your financial life in one click.