Family Budget

Most people's money doesn't go as far as they would like for it to go. Analyzing expenses, income and creating a budget with itemized monthly entries for income and expenses will enable you to make your current income go further, identify opportunities for saving money, and possibly enable you to save more. The more you put your cash flows under a microscope, the easier it will be to improve your financial prospects and take an additional step toward financial independence.

Creating a budget involves choosing a system for recording and reporting performance against your financial goals, recording your financial goals, specifically documenting your income and expenses, computing and analyzing the difference between your income and expenses, monitoring your progress and making key adjustments to improve your performance.

I've tried using Quicken, MS Money and other programs for budgeting. For Budgeting purposes, I have found them too cumbersome to model cash flows and to closely track where things are headed in future months.

For budgeting, forecasting and cash flow management, Microsoft Excel is the best alternative since it allows modelling, can be configured to show the future impact of financial transactions today, etc. I utilize an Excel Cash Flow Workbook (CFW) with one tab for each month of the year. Within each monthly tab there is a spreadsheet with income/expense items down the left margin and the days of the month across the top.

Income/expenses are entered in the spreadsheet and monthly totals are computed and displayed on the right side of the Cash Flow Workbook (CFW). In the Header area of the spreadsheet is a computed section which indicates a computed daily balance for your checking and savings accounts. I've used this format for many years and it provides the best view of cash flow that I've seen.

For recording your financial goals, determine and record your income and the dates you receive it in the CFW. Include bring home income from your salaries, wages, bonuses, interest, dividends, Social Security, tax refunds, rentals, sales, etc. Be conservative in entering income for the future into the CFW.

Then record your expenses in the CFW. This step is more time consumung because it must be done for every category of expense you incur. Your expenses should include fixed expenses such as your mortgage, auto loan/lease, other loans, children's education, taxes, insurance, savings, and other necessary expenses that have fixed monthly payments.

Then record variable expenses like utilities, groceries, credit card debt, medical bills, repairs/maintenance, phone, clothing/laundry, transportation, professional services (financial advisor, attorney, etc.), and similar necessary expenses that have payments which vary from one month to the next. Then record discretionary expenses like recreation/entertainment, vacations, restaurants, movies, books/magazines/CDs, gifts, furniture, tools, sporting goods, cable TV, gym membership, charitable contributions, pocket money, and other expenses that aren't strictly necessary for your survival.

You might want to group discretionary expenses into a couple of simpler categories like other or miscellaneous. By tracking your expenses for a month or two, you can usually get a pretty good indication of how you spend your money.

To determine your goals, establish a monthly budget and identify the larger items for which you are planning. Look for ways to reduce your expenses leaving more money to save toward these larger expenses and your future. By detailing your budget and cash flows in the CFW, you lay the foundation for determining how you can improve your cash flow situation. If you've entered your data for the next 12 months into the CFW, you can easily identify the low water mark for your cash each month out into the future.

By monitoring your ongoing expenditures using the CFW, you'll be able to accomplish your goals while living comfortably.

Working Cash Flow is the excess of your current assets plus current period income over your current liabilities during any period of time.

Working Cash Flow measures the quantity of liquid assets you have available to build your future. This number can be positive or negative, depending on how much debt you are carrying. In general, people who have a lot of cash flow will be more successful because they can expand and develop passive income opportunities. Individuals with negative working cash will lack the funds necessary for their financial growth.

If your current assets plus income for the current period do not exceed current liabilities, you may run into trouble paying your debt and expenses in the short term. Bankruptcy can result if working cash flow declines over a long period of time to the point that you don't have sufficient cash to pay expenses and debt or ability to borrow sufficient funds to pay these items.

To properly manage your Working Cash, you must be able to forsee the impact today's spending will have on this week's cash positions, this month's cash positions, next month's cash positions, etc. Achieving this means that you have to have vision to your income, expenses and savings

Cash is your financial lifeline. If you allow this lifeline to deteriorate, your ability to fund living expenses and your future will be jeopardized. Understanding your cash flow position at all times is essential to making family financial decisions. Working Cash is the cash you require for day-to-day operations. The better you manage your working cash, the less you need to borrow and the more you can contribute towards medium term purchases or your financial freedom.