If you ever wonder why some people never seem to worry about money and appear secure about their spending, I’m here to tell you this could be you too.
Creating a system that helps you cover your fixed expenses and have extra left to spend without worry is critical to your financial success and happiness. By planning ahead for where your money is going, you’ll ensure it’s spent in ways that are truly important to you and that there’s always enough.
Here are a few reasons why you need a cash flow system and how it works to keep your life on track:
Know How Much You Have
One of the best reasons to have a cash flow system is knowing how much you have to spend. Maintaining your cash flow will help you understand how much money you have to spend each month and prevent you from falling into debt. With a system in place, you will clearly know how much income is coming into your account each month. For some of us, our income is steady and consistent. For others, income may be variable and a little harder to anticipate, which is why it’s even more important to keep track of incoming cash on a monthly basis.
Know How Much You Need
When you initially set up a cash flow system, you take a look at all the income coming in and all your fixed expenses that need to be covered each month. These fixed areas may look familiar from more traditional budgeting exercises:
- tithes and charity,
- savings accounts (emergency fund, retirement, college),
- housing costs (mortgage, rent, real estate taxes, repairs, dues),
- utility costs (electricity, gas, water, trash, phone, internet, cable),
- food costs from grocery shopping and going out to eat,
- transportation and other vehicle costs,
- any medical bills,
- personal expenses (anything not already categorized),
- recreation (entertainment/vacation) and
- outstanding debts (car payments, credit cards, student loans)
Once you know how much money you need to cover your fixed expenses, you can avoid outspending your income! I recommend setting a weekly cash budget for you and your spouse so you have cash to spend on whatever you want that comes up without feeling guilty about it. Latte break at Starbucks, no problem. Lunch with the guys, you’re in. And unlike maintaining a budget, once you know how much money you need, you can easily just set that cash aside each month to cover those expenses and focus on your future wants and needs with what’s left.
Which leads me to the next reason you need a cash flow system…
Plan for Future Wants and Needs
The money you have left over once your fixed expenses are covered is extremely valuable. This is money that you get to direct toward your future wants and needs. Maybe you have a large purchase you’re saving for, a household project you’re excited to start or a vacation you desperately want to book. Planning ahead with cash turns them into a reality without necessarily needing to finance a thing. Your spending potential increases and your ability to live the life you want becomes easier.
No Blame, No Shame
At the end of the day, having a cash flow system in place can help you automate your financial life so that you can spend less time worrying about money and more time living life to the fullest. It simplifies your finances, organizes them accordingly and helps you maximize the money you have. A debt-free life is one lived looking forward, never backward. Past purchases don’t infringe on future purchases and good money choices follow you. There is no blame and no shame, because you’re able to live in the moment and plan for your future.