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You Have 3 Seconds to Answer – What is Your Personal Cash Flow?

If I gave you three seconds to answer the question of, “what is your personal cash flow?”, could you answer?

If you’re not able to immediately say “yes” then we might have an issue.  Do you find yourself asking a clarifying question on what exactly I might mean?  Do you just flat out not even know what I’m talking about?  Do you not care?

I mean, what is so hard about your own personal cash flow?  It’s quite literal the cash flow that you might have as an individual.

So, what am I even asking?

Well, it’s purposefully left up for interpretation, but first let me define the term ‘cash flow’ with this definition from Investopedia – “Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business.”

So, if we’re looking for a personal cash flow, then I am asking you what the net amount of cash is being transferred in and out of your own accounts.  Or, in a duller language, how is your budget doing?

  • “Andy, you fool, I told you that I don’t budget.”
  • “Andy, budgeting is boring and for nerds like you.”
  • “Hey Bozo – I don’t budget because I’m a balla.”

Well, first of all, if you said any of those then you’re very rude.  But second, I have three responses:

  1. Don’t budget?  Sounds like you’re the fool.
  2. Budgeting is boring?  You know what isn’t boring? MONEY.
  3. You’re a ‘balla’?  Doubt it.  And even if you are, you can ball on a budget!

Literally all that I am trying to ask you with this question is to find out how you’re doing on your budget. 

  • Are you on track?
  • Do you have plenty coming in this month to cover your expenses?
  • Are you saving/investing less because you overspent earlier in the month?

These are the types of things that you should be able to answer instantly, and if you can’t then Houston, we have a problem.

I’m not saying you need to be like, “Andy, I have spent 560.29 thru the first 22 days of July in the year 2020”.  I am saying that you can have a general idea of how things are going.

Maybe I can answer this question a bit better.  If you were to ask me this for the current month (July 2020), as it’s the 21st or about 2/3 the way through the month, I would say “everything is on track and according to plan, and actually, we’re trending better than I hoped for!”

How do I know this?  Well, let’s go through it:

Use a Simple Cash Flow Tracker

First off, I use Doctor Budget because it’s simple, forces me to track my expenses (so I actually know all the crap that I buy) and it’s 100% customizable.  I will simply input the amount that I intend to spend the last week of the month for the following month.

After using it for a few months, you can really get a good feel for your spending patterns and it almost goes on autopilot in a way.  It’s a freaking awesome feeling to be totally honest.

So, now that I have step 1 accomplished of making sure that my budget was created with some intent and thought, I then start racking my brain of major purchases:

  • Are all my fixed expenses paid?
    • Yes, or there is going to be money in the account when they’re due, which I know because I use my budget calendar DAILY!
    • This includes a lot of things like mortgage, car, insurance, electric, daycare and others, but my budget calendar literally is a life saver and is making sure that we’re on track
  • Next largest expense is groceries.  We plan for $150/trip – have I been staying below that on average?  Yes, I can easily think back and I know that we’re at $400 for the first three weeks, so $133.33/week on average.
  • Next biggest variable expense is random stuff for our son – diapers, clothes, toys, etc.  I instantly know that we’re good on this because I budgeted $400 this month.  I budgeted so much for two reasons:
    • My wife is in love with buying my son new clothes all the time lol, but he was getting baptized, so I knew we were going to get some toys and clothes to help “take the edge off”
    • I found an awesome deal on Walmart where if you bought a month supply of diapers for about $90, then you’d get a $25 gift card.  So, in natural Andy fashion, I dropped $180 on diapers for size 3 and size 4, knowing he will eventually need those, just to take advantage of the deal.  If you didn’t know already, I love to buy in bulk.
      • Side note – that’s another awesome thing about Doctor Budget.  Normally we plan for about $300 in things for my son and although we usually come in well under that, it’s nice to have it just in case.  But since I was buying diapers well in advance, I simply added another $180 to the budget this month and am going to take off $60 for the next three months knowing that I don’t have to buy diapers.  This sort of customization keeps me on track and more importantly allows me to take advantage of great deals when I find them!  If you have no idea how to even plan for a baby budget, don’t worry – neither did I!  So, I documented my experiences and made them accessible to you
  • Other than that, we have a lot of smaller expenses.  Another potential big one is eating out, but since COVID has really been going on in March, we’ve basically not been doing that at all.  We went out for the first time for lunch about a week ago and really treated ourselves, but still will come in way under our goal of $150/month because honestly, we love eating in, and it tastes just as good and I oftentimes get a better beer selection at home 😊
  • Have we continued all investing and saving as normal or have we had to cut back?  All is normal!
  • Any major unplanned expenses like medical, car, home repair? Nope, outside of fixing our sump pump, which I replaced for about $200, but there’s more than a $200 buffer in our ‘Misc.’ fund.

By quickly thinking about these things, and really it was just 6 simple thoughts, I was able to identify the fact that we’re going to have a positive cash flow.  I mean, maybe it was longer than three seconds, but it was less than 30!

But I only know this because I look at my spending daily.  I am always looking at my credit cards, my bank account, everything, just to make sure that I am on top of what is coming in and going out.  I find that by using the budget calendar it almost gives me that same “high” that you get from crossing something off on a to-do list as when I make a payment on something.

I mean, when you agree to pay off a car in 60 months, it’s really a 60-item to-do list, right?  That’s the mindset to have.  They’re tasks that you’re knocking out month by month and if you can get it done early, then do it!  But only if the interest rate is really high…otherwise, invest that cash!

Why Awareness is Key

At the end of the day, the thing that I am really trying to say is that you need to stay on top of your finances and make sure that you’re looking at things frequently.

I’ve said it before and I’ll say it again – I love Doctor Budget.  But if you’re 1000% against a budget tool, then maybe start even smaller.  You can try to find out your personal cash flow simply by looking at income and expenses, but it is soooo much easier with a budget and a budget calendar

Why not just start with something even bigger picture?  Look at your income for the month.  Download your most recent credit card statement and your bank statement and just go from there.  Look at the numbers at the very end.

If you find that you made $2000, spent $800 on your credit card and then spent another $1000 from your bank on things like a loan, mortgage, rent, etc., then just put it in Excel quickly to see how you’re doing:

Honestly, the math is so simple that you could even put it in just a normal calculator.  By doing this you can see that you’re saving $200/month.  Is that good?  Well, it depends on a ton of things.

  • Do you normally save more?
  • Are you putting money into a 401k/HSA/Traditional IRA that might not ever hit your bank account because it’s direct deposited into a different account?
  • Are you happy with 10% savings?

It’s really a question that is 100% personal and that’s why they call it personal finance, but it’s something that you need to be thinking about regularly.

I know that sometimes my personal finance posts can seem preachy, but I really want to just drive the point down that all that needs done is a mindset change.  That’s it.  It’s all in your head.

I’ve had people tell me that they can’t get out of debt and there’s nothing that they can do about it.  BS!

There’s always something that you can do.

  • Are you living a minimalist lifestyle?
  • Are you tracking your expenses?
  • Are you considering a side hustle?
  • Have you asked for a raise?
  • Do you cook cheap and healthy meals?

It’s all effort.  I guarantee that I can take a look at your budget and find ways for you to cut some money.  Maybe it’s a gym membership that you’re not using.  Maybe it’s that you go out to eat at lunch everyday at work when if you could simply pack.

Do you know what the cost of going out to eat for lunch does to you?  A $10 lunch bill, which is pretty dang modest, might only be $7 more than if you packed your lunch for $3, but if you did this just one day every week, you’d have nearly $45K in 30 years.

45 thousand $$s to pack your lunch….ONE DAY PER WEEK!

That’s it. 

If that doesn’t motivate you to make a change then honestly nothing well. You can just go ahead now and exit out of this post because I think you’re a lost cause.

You Need to Do What It Takes

Yeah, I said it.  If you’re struggling to hit your savings goals and you don’t have that drive to get down and dirty and do literally anything that it takes to hit your goals, then you’re going to perpetually be unhappy with your financial situation.

I don’t mean to be doom and gloom, I really don’t, but until you hit that breaking point you’re never going to change.  I can say that because I am speaking with experience as I’ve been in the exact same situation as you.

I’ve made a ton of money mistakes.  I’ve maxed out credit cards intentionally, borrowed from a 401k, made the biggest 401k mistake that I could possibly make by not maxing out my company match and even went years of LYING on my budget to make my budget fit my spending rather than my spending fit my budget.

I am saying this from a place of encouragement and I am ALWAYS happy to assist you and look at your budget, walk through Doctor Budget with you and explain how it works, or whatever else that you might need.  Just reach out to me at andy@einvestingforbeginners.com.

Becoming financially independent doesn’t happen overnight.  It’s a snowball effect that takes a while to get going but once it’s going, it’s impossible to stop.  The first part of making a snowball is a mindset – are you ready to go freeze your butt off?  If you’re not, you’re going to sit inside and watch Netflix all day.

Being financially free is the same – are you ready to confront your mistakes and fix them?  If so, then let’s get going – I’m going to teach you how to be financially independent RIGHT NOW!