43 - Develop a personal budget and track your cash flow . . . to keep you on track with your spending.

Reason for this Goal:       Developing a personal budget and understanding how to budget your money so that you spend within your means is a foundational principle of money management. The tracking of your expenses (what you spend your money on) against your income (what you earn in your job or business) is important to ensuring you stay within your budget.  

It is easy to start spending more money than you make, and that will lead to debt problems.   By inputting these financial numbers into an Excel spreadsheet, or one of the other on-line tools that are available from your bank or as a downloadable app, you will gain confidence in your spending and will have controls in place to spend within your budget.

Setup your personal budget and cash flow projections to track the following:

INCOME – the pay from your employer, and income from other sources, such as

  • income from a side business
  • income from a rental property
  • royalty income 
  • income from investments 

EXPENSES – the things you spend money on, such as:

  • investment savings
    (your first expense should be SMART Goal # 46 - Invest 10% of your income - pay yourself first).  This is important
  • house (heat, hydro, water, insurance etc.)
  • taxes (income, property etc.)
  • children (day care, activities etc.) 
  • clothing 
  • education 
  • food (groceries)
  • dining out (restaurants)
  • gifts (Christmas, birthdays, anniversary etc.)
  • automotive (payments, gas, insurance, automobile club, road tolls etc.)
  • gym membership 
  • charity 
  • health (nutritional supplements etc.)
  • vacations
  • expenses associated with your rental property 
  • etc.

Your budget = your plan on what you will spend your money on.

Your cash flow = INCOME less your EXPENSES.  

Your aim is to have a POSITIVE cash flow so that at the end of each month, you are not in a deficit.  Your personal budget will be completely unique to you and will change throughout your life numerous times.

The key is to understand your income coming in and your expenses going out. If you don't do this, it is too easy to assume you have the income you need to cover additional expenses you are considering taking on. 

Tips to keep your personal budget cash flow positive

  1. Don't overspend on your Living Expenses - Your biggest expense will be associated with your living expenses (rent or mortgage).  Be careful not to over extend yourself in this area, has it will have a huge impact on your cash flow
  2. Don't buy an expensive car - One of the biggest mistakes young people make is to spend too much on car payments.  Instead of buying a new car, but a used car.   Choose a car that has a high reliability rating and low cost of ownership.  
  3. Avoid Clutter - A great way to help you keep on track with meeting your budget is to avoid spending money on things that will ultimately form "clutter" in your life.  Check out the lifestyle goal on how to declutter your life, as one of the most significant ways to keep you on budget and on track for your retirement building. 

You should track your personal budget and cash flow on a daily, weekly, monthly or annual basis.    

Suggested Goal(s):     Develop a personal budget (system) for tracking your cash flow.
Your Outrageous Goal:  Maintain your cash flow tracking system for life.

Return to financial goals.