As mentioned in my previous post, the plan for Memorial Day was to spend some time sitting down and creating a spending plan since I don’t care for the term budget. I did just this and the results aren’t the most encouraging. I have been spending more than I should be in many areas. As a result, there is great opportunity for improvement and taking control of my own destiny. So, how did I create the spending plan and what will I do with the information?
Looking at Where We’ve Been
The income portion of the equation was fairly easy. I looked at the deposits to the checkbook since all of my work income is directly deposited. It fluctuates somewhat, so I took the amount over the last 6 months and divided by 6 to get an expected monthly total. I then looked at the income from the rentals over the first 5 months of this year and subtracted a little for vacancies in order to get an expected amount from rental income.
Next, I listed out all the fixed monthly bills such as mortgage payments, car and student loans or anything else that had a regular monthly payment that was well defined. I then looked through my receipts for period payments like life and disability insurance and calculated an appropriate monthly total.
For expenses such as gasoline, I added up 2 months worth of debit card statements since we rarely pay cash for gasoline and primarily use the debit card. The totals were very similar so I got a pretty good idea of that expense. I did the same for eating out and groceries.
Where are We Going with this Information?
I would like to improve my monthly cash flow in order to begin paying off some debt and establish some emergency funds. Of course, there are 2 ways of improving cash flow. First, it is possible to increase income which is great but may not always be an option. The second way to improve cash flow is to decrease expenses. I would like to do both if possible, but I plan on starting with the low hanging fruit and analyzing every expense over the next few months to see what can be cut out.
I plan on starting by tracking each and every penny that is spent on a daily basis. When my wife and I kept meticulous records of calorie intake, we were able to lose weight. I figure the same principles will apply to managing money. Meticulous record keeping and the resultant focus should lead to decreased expenses and small successes that can build momentum.
We will get this started for the month of June with the goal of increasing cash flow by 2% mainly by decreasing expenses. I will report the progress at the end of the month and hopefully will be able to examine some of the structural components of the spending plan and see if there are alterations that can be made in order to increase monthly cash flow more. Ultimately, I would like to see cash flow improve by about 1% per month on average over the next year.
Some people don’t really care for the word “budget”, and I am one of those people. For some, budget has the connotation of denial. I get the impression that I can’t spend money on something because I can’t afford it. It may be perfectly true that I can’t afford it, but I really don’t like to be told what to do. I would bet there are many people like that in the world since I know there are many people in debt and living paycheck to paycheck.
If I am going to become financially free, though, I am going to have to get over my aversion to the word “budget”. Maybe I could call it a spending plan or a cash management system or Fred for that matter. Regardless of the terminology, I am going to have to have some idea of where my money is coming from and where it is being spent in order to make sure that I have some left over at the end of the month. Ultimately, I will need to pay off some debt in order to lower my monthly payments to improve my monthly cash flow.
I will also have to look at discretionary spending and discover where I can save money. I will have to spend less money on food, clothing, gasoline, utilities, insurance, entertainment, and a host of other items in order to improve cash flow as a first step toward financial freedom and being able to be in a position to live off of passive income. All of this requires some sort of plan, ahem “budget”.
The upcoming Memorial Day weekend will provide the perfect opportunity to look back at the first five months of the year and review spending. I can look at all of the fixed bills such as the mortgage and student loan payments. I can also review spending for gasoline and groceries. It will be difficult to see what cash was spent on, but I will be able to track the amount that was spent. Using this information, I will craft a spending plan for the rest of the year and work to trim any unnecessary expenses.
So who is with me? Are you motivated to become financially free? Do you have a spending plan? Are you willing to put one in place?
Many dream about financial freedom but so few actually achieve it. Financial freedom is easy in theory but can be difficult in practice. Whether you make $1000 per month or $1 million, if you spend more than you make, you will never be free financially. That’s what Cash Flow Mantra is about–taking the necessary steps to move from debit spending to living within one’s means to using that excess cash flow for generating passive income.
Mantra comes from the Sanskrit word which, when literally translated, means “instrument of thought”. It is hoped that this blog will serve as an instrument to stimulate thinking and discussion on ways to improve your individual or business cash flow. I know that I will be working to along with my readers to improve my cash flow with the goal of becoming financially free.
As alluded to earlier, Cash Flow Mantra will seek to assist you in managing your debt in such a way as to improve cash flow, become debt free, use the excess cash to invest so that these investments ultimately produce enough income to meet the basic expenses of life. The amounts of cash required will be different for each reader, but it is hoped that together we can all improve our financial situation.
So won’t you join me in the first steps of this wonderful journey toward financial freedom? It will take some effort and may be a long journey, but the destination will certainly be worth it.