Your Personal Finance Journey
Organizing Your Finances – Part II
In Part I og organization, we dealt with gathering assets and liabilities and figuring out your net worth. The goal of anyone who wants to increase his or her net worth is to
- Increase assets, so that they are more than liabilities, and/or
- Decrease liabilities.
To do either one of them, you need to figure out how much money you have. This is not how much you make. How much money you have is basically your net income. Its what you have left after you deduct day to day expenses.
You need to determine how much money you have left over and then apply that money to either gaining assets or reducing liabilities. Easiest way to figure it out is to come up with a cash flow statement.
CASH FLOW STATEMENT
A cash flow statement is essentially a list that shows you how much money ‘flows in’, how much money ‘flows out’ and the net cash flow or the balance.
- Cash Inflows: Start by listing how much money you get every week. In this list, include wages, salary, interest from the bank, stipedms, etc. Whatever gives you money in a week, add it here. Then total it.
- Cash Outflows: List all the expenses you typically make in a week or on a biweekly basis. In this list, include rent, utilities, credit card payments, payments to loans, child support payments, shopping trips, etc. Whatever makes money go out of your wallet, add it here then total it.
Net Flows: Now that we have gathered all that information, the next step is to figure out your net cash flow. Subtract your total inflows from your total outflows. THe result is how much you have left at the end of the period.
If you have a negative number, it means that you spend more than you make. Once again, Please DO NOT PANIC! If you are willing to be patient and to work hard, there is always a way out of a financial bind. In the next post, we will deal with analyzing all this information we just learnt. We will also talk about different steps we can take to increase our net cash flows and net worth.
If you have any questions, send an email to blog ‘at’ coursesathome.org (replace ‘at’ with @)
To take an instructor led Personal Finance Class, visit us at Courses At Home
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