Cash flow is a topic we all struggle with from time to time - even financial professionals like me. The key to managing it with confidence is not in curtailing your spending to the extreme, but rather in understanding where and how every dollar is used.
I have learned many things about analyzing cash flow through working with my clients, but the biggest one is this: There will be times you will fail in budgeting and managing your cash flow. You are going to make mistakes. That is A-OK.
There is only one situation where it isn’t ok. Quitting and sticking your head in the sand. Never quit because of failure. Understanding and managing your cash flow takes work and practice.
Having a regular cash flow conversation with yourself is critically important to the health and well-being of your overall financial plan. It can be even more productive and eye-opening if you have the conversation with a friend or family member, benefitting you both in numerous ways.
Talking About Cash Flow is Key to Understanding It
My daughter Riley and I recently went through a fun exercise. We each analyzed our spending over the last year. Want to know what we discovered?
Some surprises for Riley:
- Almost 50% of her spending was on clothes.
- Fast food was a lower % of her expenses than she originally guessed.
- While she spent a lot on clothes, most of her spending was at a consignment shop instead of retail stores.
- She did not “out-spend” her income (because she only uses a debit card)
Some surprises for me:
- Spending in the shopping category was higher than I would have liked.
- We use Venmo way more than I thought (and it required extra digging to see exactly what for).
- We gave more to charity than the previous year.
- I had two months where I had to pull from emergency savings due to both of our air conditioners failing (at the same time)
In both our situations, we were “surprised” by the total dollar amount of spending we each did last year. Sometimes it’s easy to spot when your cash flow gets a little out of balance. Sometimes you may not realize it until it’s too late.
I was glad we looked at it together and it made me reflect on changes I might need to make next year. And I was glad I shared our family cash flow picture with my 17-year-old, so she could better appreciate that the roof over her head isn’t free.
How to Manage your Cash Flow with Confidence
If you’re not happy with your cash flow confidence, then here are a few things you can do to start changing it:
- First, shift your mindset about the situation. Accept where you are in your financial life, and decide you want to get 1% better.
- If you are actively working to change things, that’s awesome. But don’t beat yourself up over where you think you should be or where you aren’t quite yet with managing your money.
- Recognize that where you are right now in life and in finances is just a stop on your journey. Knowing and accepting that where you are right now is temporary means that it’s ok to keep moving forward.
- What you spend money on doesn’t make you who you are. But reflecting on your spending can help you determine if your money flow is out of line with your values. And it can help you align the two.
Knowledge is Power when It Comes to Cash Flow
Perhaps your income streams have changed, which can affect your debt and taxes. Or maybe essential and discretionary spending has experienced some creep, which can affect your debt and goal funding.
Or maybe your savings goals have changed, which can affect your discretionary spending. To help you form a better awareness of what;s happening with your cash flow right now, take a few moments to go through my free “What Issues Should I Consider When Reviewing Cash Flow?” checklist. It covers several areas that can help shed light on possible planning issues to consider. Are there areas you should revisit? 1
Seek Out Professional Guidance and Support
If you’d like to delve into your cash flow situation in more detail, please do get in touch. We can analyze the ebbs and flows of your income and line it up against your goals. Contact me to schedule a time to have a conversation that can give you confidence that your entire financial plan is pulling in the same direction.