Ever wonder where your money actually goes each month?
Enter the Statement of Cashflows – your financial tell-all that reveals your money's comings and goings. It's more than just what hits and leaves your bank account; it's a story of your financial habits.
Cashflow is like water flow into and out of a bucket. What you have left in the bucket is called 'Net Cash Flow'
"Cash Inflows" is the cash that comes from your hard work, investment payouts (i.e. dividends), or other sources that make your bank account grow larger. Then there are "Cash Outflows," the cash that leaves your bank account like your rent or monthly subscriptions.
The simple trick to building the life you want is to take as much as the cash inflows as possible and direct them to outflows of investments and savings (more on that below). Very similar to how a farmer waters their crops and nurtures them for the long game. That’s what “paying yourself first” actually means, and it should be the first chapter in your spending saga.
Here’s a template to tell your own cash flow story:
Cash Inflows
Salary from W2 jobs
Income from self-employment
Interest and dividends from stocks / bonds
Capital gain distribution
Income from rental properties
Total Inflows
Cash Outflows
Category 1: Investments
Individual Stocks and bonds and mutual funds
Retirement accounts (e.g. 401K, IRAs, etc.)
Subtotal
Category 2: Savings
Any cash flowing into a savings or checking account to be used later
Subtotal
Category 3: Fixed Outflows
Mortgage or rent payments
Auto loan payments
Insurance
Property Tax
Subtotal
Category 4: Variable outflows:
Home maintenance
Food
Clothing
Utilities
Travel
Entertainment
Miscellaneous
Subtotal
Total Outflows (add up the subtotals from category 1 through 4)
Net Cash flow = Total Inflow – Total Outflow
The simplest way to create your statement of cashflows is with a paper and pencil. If you want more context and guidance on how to create your own cashflow statement, then I invite you to try one of LMWF’s programs, such as our iOS App, online course, or book (links below). These tools help you not only track your cash flow but also learn strategies to optimize it, ensuring every dollar is cast in the right role. Discover our tools and start directing your financial story today at letsmakewealthfair.com.
(includes the Let's Make Wealth Fair Workbook)
(only the workbook)
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