I am a great believer in living life. Live, love, laugh: that’s my motto. I am also a great believer in being responsible for myself and my actions- not that I’m proud of them all! Nonetheless, they are my actions, and I take responsibility for them all, good or bad. In financial planning, money in or out falls under the category of cash flow. We are responsible for all the money- the inflows that come into our lives either from wage earnings, lottery winnings (hey- you bought the ticket and picked the numbers didn’t you?) or most ways that the funds find themselves into your pocket. Our expenditures- or outflows- are also a factor of our responsibility. If you spent it, gambled it, lost it, dropped it, gifted it or squandered it, you are the one responsible for the dispensing of the dough. This is called cash flow: accounting and balancing the inflows vs. the outflows. We all know the balancing act that this exercise needs.
When looking at cash flow, we are usually caught between the proverbial rock and the hard place: the I Want vs. I Need. If we are among the Gates and Bloomberg’s of the world, we have no distinction between the two. But, since I and most of you have a surname other than those that fall into that category, we fill into the I Want vs. I Need area, which makes us prime candidates for doing monthly cash flow and being responsible for our decisions.
Doing a personal cash flow report entails documenting all that you bring in and all that you pay out. The simplest way is to buy a cash flow documentation system like Quicken, Microsoft Money or the like (check you computer- it may have come with it) and slowly and methodically enter in all of your checks written of the past year. Why a year? Because some bills may be paid quarterly or annually, and if you do less than this timeframe, you may miss them. This will give you a clear idea of what your expenditures are annually as well as monthly, and who you are paying it out to. Now, do the same with all your credit card statements. Just entering in a mass payment does not tell you where it went as it is a consolidated statement. Treat each charge separately, and make sure to categorize all your expenditures. At the end of the exercise, you will know how much you spend on clothes, utilities, groceries, etc. I warn you- it’s an eye opener! Don’t forget the trips to the cash machine- they add up.
The most important detail of this exercise is to be honest with yourself and be open to what you find. Remember- it’s your checkbook and credit card, so take responsibility!
