Do you want to gain control of your spending? If so, the first step is to develop a cash flow statement. It doesn’t have to be all that detailed unless you have major spending problems.
So, what does a cash flow statement do for you? It tracks all your sources of income and all your uses of income. If it is done properly, a cash flow statement will give you an idea of what you are spending your money on and also show you areas where you can improve.
The first part of the cash flow statement is the sources of cash, which typically are:
- Mutual fund distributions
The second part of the cash flow statement is the expenses section. Expenses can be divided into three categories:
- Payroll deductions – We are all familiar with these!
- Fixed expenses – These are expenses like a mortgage payment or car note that doesn’t change from month-to-month.
- Variable expenses – These expenses vary (hence the name “Variable expenses”) from month to month.
This will make much more sense once I post a model of a cash flow statement. I’ll do that with my next post.