Security lies in mapping your money
Where does your money go? Do you know how much money you make or spend on a monthly basis? You may want to know the answer in order to feel more responsible, sensible and in control.
As a CPA, I hear numerous people say they would rather take a beating than have to work with numbers, maintain financial records or even learn how to balance their bank account. Even at a basic level, managing money and finances is a necessary part of day-to-day living, and is a necessary responsibility anyone can benefit from learning and understanding. If you want to stay alive and have food, shelter, clothing and the basics, it’s worth knowing some fundamentals to help contribute to self-sufficiency. From complex business endeavors to basic personal finance, tracking finances and planning can help you make smarter choices and aid in making small and large financial decisions.
Meeting day-to-day expenses can sometimes steal the joy out of living and make us feel like all we do is work to get by. Accounting teaches us to learn financial responsibility and allows for a method to organize financial information to calculate how much money is expected or coming in and how much is spent or needs to be used to pay bills. Setting financial goals can shift your focus to feeling more productive and empowered, and give you peace of mind while working toward financial security. Determining what is important such as buying a car or a house, saving for a vacation or retirement, or paying off debts, are common goals to consider and help in developing a realistic spending or savings plan. Maintaining a bank account, budgeting costs and expenses, paying bills and understanding your paycheck can be simple financial tasks to carry out.
A practical place to start is
to map your money by taking a look at your monthly cash inflows (income) and cash outflows (expenses) to create a personal cash flow statement. List your net take-home pay and any other sources of cash inflows and income received for one month. Next, add up your monthly bills paid or money spent each month such as rent, payments, insurance, food, travel, entertainment, utilities, clothing, incidentals and other obligations. Reviewing bank statements or credit card statements for several months can generate a good estimate of routine monthly income and expenses. Seeing a monthly total can awaken you to where money is spent or could identify areas where costs need to be cut. It can sometimes be a necessary shock to make you realize what spending habits you may have that need better control.
Next, determine your net personal cash flows from subtracting your monthly cash outflows or expenses from your monthly cash inflows or income. If you have cash left over, you’ve earned more than you’ve spent. With this positive cash flow you have opportunity for saving, investing and planning for important financial goals. If the number is negative, more money was spent than came in for the month. Negative cash flows will reduce prior savings and can mean spending habits need attention.
Once the cash flow calculation is completed for a prior month or for several months, you can use the estimated monthly income and expenses to prepare a monthly budget. A budget is a financial road map. Having a financial plan before spending money, helps set your mind at ease for upcoming obligations, needs and wants. A budget can also help to create a timeline for scheduling bill payments so that are on time, and help pay down debt and liabilities in weeks or months where positive cash flow exists. Making timely payments on loans or credit cards is also important for maintaining a good credit score which is part of financial responsibility and security.
You may still find a want or need to hire a financial professional to assist and guide you through the maze of financial decisions and money management, or to help with financial planning, tax preparation or investing. See where you money has gone and where it can go by just getting started to eliminate guesswork and stress, and promote your ability to prosper. You have the power to take control and find financial peace without taking a real beating.