Updated: Oct 16, 2020
I want to start this by saying if you have a cash flow and/or budget in place and you know exactly what you’re spending and where each month this post if NOT for you! If you would like to know where your money is going and to put a plan in place to save and look at where and how you can optimise your money then read on…
Do you have an emergency savings fund for when things crop up? Do you put money into savings each month? Are you living payslip to payslip each month and can’t see a way of saving anything? Being able to save even if it’s only a small amount each month can be extremely motivating. If you have a dream holiday or you want a new car or you just want to have a rainy day fund by just putting away a small amount each month and not touching it you will be surprised at how quickly that builds up.
We live in a society that wants everything now and we’re sold to that way as well, which is why so many people have credit cards that are maxed out and loans hanging over them and on top of that LOADS of extra stress and sleepless nights worrying about how that debt is going to be paid!
This is where having a cash flow can be extremely useful, you can use a cash flow to work out how long it will take you to pay off your debts or if you’re not in debt how long it will take you to save the amount you need for your goals or dreams and also start thinking and looking at ways to earn more money or add more value at work to get that promotion that you’ve been thinking about.
I would recommend having a savings emergency fund account as well, even £500 - £1000 in a savings account that you don’t touch takes a lot of pressure off as you know if something happens you have that back up. If you’re reading this and thinking that you will never earn enough to have that money in a savings accounts let alone savings for your goals or dreams then I recommend reading this.
The reason for me writing this post was to give a breakdown on where to start with a cash flow
If this is something that you have never done before please don’t stop now, just starting and looking at your spending and being able to visually see your financial future as things stand now can be life changing ….have you ever looked at how much you spend on things that you have never used and probably never will? Or things that you bought, used once and they’re now sitting in a cupboard or on a shelf? Or how much you spend on coffees, snacks and lunch at work?
I have created some simple to use cash flow templates here (these can be adapted to you, I have used very generic costs and income) or you can create your own or there are a number of amazing budgeting and cash flow apps that are available as well. It doesn’t matter which one you use the most important thing is to have something that you can look at and see your income, your spending and what is left at the end of each month so that you can plan.
Planning to do your cash flow -
I usually ask people to look back through the last 3 months of bank and credit card statements but most of the world has been in lockdown for the last 3 months so if this is the case for you and you haven’t been spending anywhere near as much as you were then look at the last months statements and then 2 months before you went into lockdown. Once you have these statements:
In whatever template you are using breakdown and list EVERY SINGLE payment that came out of your bank or credit card. You can categorise everything, for example if you have entertainment costs instead of breaking it down into meals, nights out, coffees/teas, lunches etc you could add it all up and class it as entertainment or down time
I have created straight forward easy to use cash flow templates that you can download here: https://www.amour.coach/free-cashflow-templates
Then enter your total income for each month – If you are using the templates I provided this will give you a balance at the end of each month that shows if you’ve over spent or if you had money left over, it will also show you your savings balance (if you have savings).
If you have debts then you can add in rows at the bottom of the sheet that show the opening balances on your loans, credit cards and any other debt (I have included one credit card in the main sheet) that you have and then I would recommend starting with your lowest debt and paying as much as you can each month to clear that while paying the minimum amounts on your other debts so that you don’t default. By doing this it’s a great way to stay motivated as every time you clear a debt you’re one step closer to being debt free! It is also a great way to visually see your debts reducing each month. (If you would like assistance adding the formulas into the spreadsheet so that they automatically calculate your running balance each month please email me at firstname.lastname@example.org)
Once you have 3 months of income and expenditure on the template you are using have a look through it and see if there is anything that you are spending money on that you don’t use. Do you pay for subscriptions that you never use? Do you pay a gym membership but only use the gym twice a year and it would be more cost effective to pay as you go? Do you spend a scary amount of money on food and things you pick up while you’re out that you could plan for and save that money instead?
If you are not tied into contracts I would suggest doing a search to compare your electric, gas, internet, phone etc. You could be pleasantly surprised on how much you could save by shopping around and nowadays moving to another provider is easy or speak to your current provider and they might be able to match the price that you have found!
By doing this have you saved anything each month? Could that money go towards clearing your debts quicker or if you don’t have debts could you add that money to the money you transfer to savings each month?
Now complete the rest of the year / to the end of the cash flow period and stay realistic. We all need down time and fun time so saying that you are going to go from having time out with friends to not leaving your house apart from work and cutting your food budget in half won’t work in the long run and it will be really defeating when you come back to look at your cash flow at the end of the month/ quarter. Budget for the things you enjoy and then if you have a quiet month (or you’re in lockdown and aren’t allowed to go out and see friends!) and you don’t spend it all that’s great you can save it or put it towards the following month.
Why bother with a cash flow or a budget or both if you’re in business?! I have seen businesses thrive because they’ve been able to forecast for down months and save or plan to cover those months and I have also seen businesses fail massively because they weren’t interested in budgeting and following the forecasts or the cash flow so I know the benefits professionally and personally for at least having a cash flow.
Why bother personally? Do you have credit cards? Loans? Most people do! Do you have a plan in place to pay these off? Do you want to pay these off? (Stupid question I know but if you don’t mind having debt and you’re not really that bothered about your money then maybe this isn’t for you)
Creating a cash flow can be a daunting task especially if you’re not excel savvy and this is something that is completely out of your day to day normal life and initially it can be a bit time consuming getting everything set up but once you’ve got it up and running and you’re using it, it will change your finances and in the long run your life if you’re using it to plan and forecast! If you normally sit and relax with your favourite TV shows in the evenings could you miss a few evenings to get this set up and then watch them on catch up?
The free templates that you can use if you would like to are here.
If you would prefer to create the cash flow and also look at what financial freedom looks like to you and to work through any limiting beliefs you feel are holding you back with me then please book a free 30 minute consultation here or you can book one of my MONEY MINDSET coaching packages here.