Are you confused by keeping track of where your money is coming from and where it's going? Do you know how and when money is coming in? Do you know where and when your bills are due, even those that are once or twice a year? Use this simple method of Cash Flow Analysis and you'll be able to get a handle on budgeting your money.
Things You Will NeedA desire to budget your money
Spreadsheet Software for your computer
Step 1The first thing you need to do is create a list of all your sources of income - salaries, dividends, bonuses, stock sales, etc. See the attached photo.
Step 2Next, make a list of all of your expenses. Be sure to include everything, even if occurs only once or twice a yer even if they occur only once a year. See the attached photo for an example.
Step 3Next, make a spread sheet with your income sources at the top and your expenses below. Make columns for each month of the year and a year-end total. Now, fill in each item for every month. If your income varies by month, estimate it to the best of your ability. Do the same with expenses. Do your utilities vary in summer vs. winter? Once again, use your best estimates. Be sure to put in the occasional expenses, like Property Taxes, Car Insurance, Homeowners Insurance, Medical and Dental bills, etc. Now, make sure the columns for each month are added correctly in your spreadsheet - Total Income and Total Expenses for each month.
See the attached photo.
Step 4Now for the fun part. Examine the last row which shows your Income minus Expenses. You'll see that in some months your income exceeds your expenses, while in other months, you need more money than you'll have coming in. In order to be able to absorb those "shortfalls", you'll need a savings account so you can plan ahead by setting aside money for the months when you need extra cash. The spreadsheet gives you a 12 month snapshot of your income vs. expenses which allows you to see your cash flow. If your annual income exceeds your expenses, good for you! If, on the other hand, your annual expenses exceed your income, use the Cash Flow analysis to determine where you can cut back. If that's not possible, you mus look for other sources of income. Depending on how much more cash you need, you could have a garage sale, get a part-time job, get a home equity loan, sell one of your cars, etc.
Periodically update the Cash Flow Spreadsheet when there are significant changes in either your income or your expenses.
Tips & WarningsAlways, I mean always, pay your credit cards in full every month.
If you see that your annual expenses exceed your income, you need to either decrease your expenses or find a way to increase your income.