Have you ever gotten to the end of the month, looked at your bank account balance, and asked yourself, “Where did all the money go?!”  Or worse, had a spouse ask you this.  (The last one is from my own experience on numerous occasions after 27+ years of marriage.)

It is important to know what money is coming in, how much is going out, and where those dollars are going.  The technical name for this is cash flow analysis, which is not the same as a budget.  Cash flow analysis looks at what has actually occurred, while a budget is a forward projection of where you want to spend your money.

You can break your monthly spending down into two major categories:

Non-discretionary spending is paying bills that are mandatory like food, mortgage or rent, health insurance, and utilities.  Discretionary spending goes for the things we “want” each month.  Hobbies, dining out, and streaming services are some examples that we all like to spend money on, but they aren’t required for daily living.  (Of course, this is subjective, as I know several people who think fishing or Netflix is essential!)  When thinking about your cash flow analysis, you can categorize your spending as you see fit, but more importantly, you make a list of what you spend and who provides those goods or services.

There are multiple ways to track your spending.  I use a computer program that can download data from my bank and investment accounts, credit cards, and loans.  There are many programs available.  A few free ones include: Mint, EveryDollar, and Buddi.  YNAB, Mevelopes, and Pocketguard are programs that charge a fee.  There is also the “old school” method of keeping a written log or creating your own spreadsheet on the computer.  I suggest you pick a method that you will use to track your income and spending effectively.

Be prepared to be surprised.  You may have no idea how much you are spending on something.  For example, streaming services, TV packages, and cell phone services are often more costly than expected.  The point of a cash flow analysis is to have a clear understanding of how you spend money.  This is best achieved with minimal emotion while gathering the data.  Once you have had time to track the data over a two- or three-month period, you can review it.  If you have a spouse or partner, you might review the data with them and discuss areas requiring attention.

Having a clear understanding of your income and expenses is far more comforting than not knowing where all the money goes.  It does take time and effort.  You will most likely find some things that you don’t like, but this is a good thing because then you can fix them.  Knowing the truth of your cash flow is a step towards greater financial freedom.

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