Cash Flow: Part Two

Tina Haapala |

In the first issue of this series, we began the journey to getting your financial life in order starting with cash flow. By now you have a list of all your annual income and expenses. (I’m realistic though; you probably haven’t started yet, so just cut out this article and save it for later.) If you missed last week’s article, send me an e-mail to the address listed at the end of this one, and I’ll send it to you.

As we left off, I said that cash flow is like a diet. Cash flows and diets are descriptive. A diet is what you eat; cash flow is what you earn and spend. It is what is. That doesn’t mean that you won’t later make changes to your cash flow to be able to save for a dream vacation or to put your kids through college, just as you might change your diet to lose weight or to aid in an athletic endeavor. But first, you must know where you stand today.

What categories you put these into is up to you. For instance I lump all my utilities under one heading. You might want to split out gas, electric, and water. The more detailed you get, the more information you can glean from the data. The simpler you get the better chance you’ll actually keep up with this. Remember, for now we are including any savings or investing you are doing on the expense side of things.

What we’ve done up to now is to either project what’s going to happen in 2009, or recap what happened in 2008. What needs to be done from now on is to record your income and expenses on a weekly basis. It’s not that you can’t do it monthly, but if you wait that long it becomes drudgery rather than a quick task. So pick a time that you’ll go through your receipts each week and log them in.

Where do you log them? If you use a computer at home, I suggest either Intuit’s Quicken or Microsoft’s Money. Both are good programs that can take some of the hassle out of this task. Don’t have a computer? No problem. This has been done on paper, papyrus, and clay tablets for thousands of years. Just have a page for each category in a loose-leaf notebook. That way you can add paper and change around categories as you want.

Gathering the data each week is easy for items for which you get receipts. For the rest, just keep a piece of paper in your wallet or purse so that you can write down the expense. And watch out for those ATM withdrawals. I find that small cash purchases can add up in a hurry.

Yes, I know having another task to do can be a pain. But if you are going to get your financial life in order and keep it that way, you have to know what is going on. Guessing, supposing, and postulating only gets you so far. Recording where you money is going give you facts.