Cash flow management is especially important today as Americans are saving less and are further in debt than at any other time in our history. Let us explore why you should have a budget. The number of people that have and follow a budget is only about 33% of people today in the U.S.
Cash Flow Management Defined: Cash flow management is the management of income and expenses both current and forecast for the future. The old-fashioned name is budgeting, and if you spent more than you earned, it was called going broke. Now we call it negative cash flow.
You should have a budget if you…
- Live paycheck-to-paycheck.
- Borrow too much money, and have no disposable income after paying fixed expenses (like rent or mortgage) and buying food.
- Are constantly stressed about money.
- Are not making the necessary progress saving for retirement, college education and car replacements.
- Have no money in savings for emergencies, and major car repairs are a crisis.
- There is no money left over after paying bills.
- You have no idea how much you can spend to eat out, for groceries, and on entertainment; you just spend what seems natural.
- Answer Yes to more than one of the above!
Smart people manage their cash flow because they know they…
- Have Limited Income: Virtually everyone has limited or fixed income. Without budgeting you are being controlled by your environment. If you have a plan, you are more in control of your money. Without a budget, you may not really know you are spending more money than you are earning.
- Need Spending Limits: Knowing what your monthly expenses are projected to be and what they actually are will help you keep track of how much money you have left over for future goals and needs.
- Have Unlimited Demands: There is an endless demand on your finances. Our commercial capitalistic society is constantly calling out for you to buy. If you have minor children, the demands are greatly increased by the things they want, the activities they are in, and the schools they attend.
- Want Freedom, Not Bondage: Budgeting seems to be restrictive to some people. The reality is that we have to make choices between what we want at the moment and our regular bills and goals for the future. However, there is freedom in knowing what your limits are. Many people find this liberating, because it creates opportunities to grow and mature.
- Have Future Goals: If you are sacrificing today, it helps to know what you are saving for in the future. By having an eFinPLAN financial plan, you will know what your goals are and for what you are saving.
- Want to be More Aware of Where Money is Going: If you do not have a budget, you may have no idea where your money is going. Knowing where you money is going will help you identify if you are spending too much money in specific areas.
- Want Less Stress: Spending without a plan and a budget increases your stress because you do not have a well thought out plan for paying your bills and you may spend more money for fun than you can afford. Planning and budgeting will give you the peace of mind that you are on the right track.
Summary: Only a small majority of people can live on no budget at all. A few people are able to control spending, and they spend very little each month. The majority of people need some kind of cash flow management system, or a budget to track their income and expenses. Knowing that you need and want a cash flow plan is the first step in the right direction toward designing a budget plan.
This is the 1st article of a 3-part series: