Real cash flow management involves understanding where your money comes from, where it goes, and what choices are appropriate in achieving goals and living your best life.
Your cash flow includes:
- Income–salary, bonus, hourly, self-employed, passive or investment sources.
- Fixed Expenses–costs over which you have little monthly control. For example, rent, mortgage, and utilities; the bills come in every month
- Discretionary Expenses–you make choices and therefore, more control can be exerted. For example, you can shop at discount stores rather than premium name brand stores
Calculate the Net Cash Flow
Adding your total income and expenses creates your personal cash flow statement. This is a component of budgeting. This helps you see a clear picture of your monthly finances.
Subtract your total monthly income and total monthly expenses and you can calculate your Net Cash Flow.
Total Monthly Income – Total Expenses = Net Cash Flow
If your net cash flow is positive, then you have extra money to put towards your financial goals. If your net cash flow is negative, it may be time to cut back on expenses and increase income.