What Is A Personal Cash Flow? What And How Do You Do A Personal Cash Flow Statement?

​There is only one way to address cash flow crunches, and it’s planning so you'll prevent them beforehand.

Having a high-paying job is not as important as having personal control over your cash flow. Well, it is an advantage if you do have a high-paying job and know how to handle your finances.

But, too many people seem to be obsessed with how big their paycheck is. To be financially successful, we all need more financial education. And financial education begins with the basics of financial literacy. And one of the first things we need to know is, how do we manage our personal cash flow.

If you feel that your finances have not improved after years of working, then you may have the wrong mindset about money. Your mindset determines your financial success. There are 2 ways of gauging your financial health. One is calculating and knowing your net worth and two is your personal cash flow.  Do you know how much is your net worth and cash flow?

What is a Personal Cash Flow?
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Your Personal Cash Flow is essentially your income minus your expenses over a particular period of your time—typically a month. If you would like to afford stuff without having to rely on loans, if you would like to grow your savings or maybe start investing, you would like to start with the essential: how you manage your finances.

What is a Personal Cash Flow Statement?

The personal cash flow statement measures your cash inflows (money you earn) and your cash outflows (money you spend) to work out if you've got a positive or negative net cash flow.​

Below is the sample Statement of Cash Flow.

​Basics of Personal Finance 
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Needs or Non-Discretionary

Needs are items that you simply got to survive. These are things like food, shelter, and clothing. They're the essentials. Needs also can be expanded to included things like utility bills and even minimum debt payments if you're in debt.

Wants or Discretionary

Wants are items that are nice to possess. They're not things that you simply got to survive. Sometimes needs become wants once you take your needs beyond the basics: for instance, if you purchase a home that's larger than you'll afford.

Surplus or Deficit

Surplus

The quantity by which your income is bigger than your spending.

Deficit
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The quantity by which your spending is bigger than your income.

What to do if you have Surplus or Deficit?
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If you've got surplus or extra money:

• Pay down your debt.
• Increase your emergency funds
• Increase your savings.
• Increase your investment.
• Invest for future expenses like your children's education or your retirement.

If you've got deficit, you would like make changes to balance your budget:
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• ​Take a look at your lifestyle, how do you spend your money.
• Review your budgeting strategy.
• Resist impulsive buying.
• Do not shop for recreation.
• Know your financial status.
• Avoid shopping to alter your mood.
• Look and create more income streams.

The Bottom Line
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​If you've got more expenses than income, you've got a deficit. You need to find ways to reduce your spending or increase your income.

Live Below Your Means!

When you're still starting out in your job, when your salary is still small, when your money is still very scarce—that's the perfect time to invest. Never wait and say, "I'll invest when things are much better."

Take the advice contained in an old Chinese proverb, "The best time to plant a tree was 20 years ago. The second best time is now."

Secure your livelihood before your lifestyle. Establish your income stream before your expense stream.

A Gift For You!
​You can download my free Personal Cash Flow template here.