However, 2 years passed, and things were not looking so good. They hardly saved up any money, they decided that the goal was impossible, and then they gave up by moving out to rent. So although they had a quantifiable and measurable goal they still were not able to achieve their goal. This situation is very common and the reason for this is that people do not consider their Personal Cash Budget or Cash Flow.
People often think that they make a lot of money. Each time you get a paycheck, you see $2,000 or $5,000 and that’s a lot of money! This is called INFLOW which is the total amount of money that is coming IN.
But what a lot of people don’t consider are their OUTFLOWS, which is the total amount of money going OUT. For an example: all the expenses such as groceries, rent, insurance, travel, and any additional expenditure.
So if you take your total INFLOWS, subtracted by your OUTFLOWS, you get your CASH FLOW.
Your CASH FLOW is the amount of money that is leftover for savings to meet your financial goals.
Cash Flow can be either be positive or negative. Positive is good, because it means that you have money leftover to save and contribute to your goals. Negative is not good because that means you are spending more than you make, which means you have to borrow money at an interest (unless your parents are the bank).
A lot of people make the mistake where they think they can meet their savings goal of $30,000 in 3 years, but they never actually calculate the amount of cash leftover for savings. If your CASH FLOW is only $5,000 per year, than it is impossible to meet your financial goal UNLESS, you
(1) Spend Less or
(2) Make More money
BENEFITS of a Personal Cash Budget
The BENEFITS of calculating a Personal Cash Budget, is that you can determine HOW MUCH you need to SAVE or MAKE to meet your financial goals. So maybe you have to convert to Tim Horton’s coffee instead of Starbucks, or live at home a few years to save on rent to reach a greater positive cash flow. (I know I’m saying the unspeakable words).