The most important money question to ask
How’s your cash flowing?
While I wouldn’t recommend busting out this question at your next social gathering, it is THE question you’ll need to answer to really know what’s going on with finances.
Here’s a visual to show you how I approach answering that question:
(If you’re listening to the audio article, the visual and full blog post are available at www.brianplain.com/blog)
The image above from my financial planning program shows a one year snapshot of a sample client’s cash flow.
On your left hand side in green are your inflows. This includes any salary, bonus income, and/or self-employment income you might earn this year. These figures are then added up to arrive at your total inflows.
In the middle in red are your expenses. They are further broken out into categories like housing, debt, insurance premiums, and regular living expenses – i.e. food, utilities, eating out, entertainment, kid’s activities, etc.
Directly below that in light blue are your goals. In this sample, we’ve included specific goals for annual vacations, home repairs & improvement projects, and annual charitable donations.
Next in gray comes a rough estimate around your federal & state income taxes and FICA taxes due.
Directly below your taxes in dark blue is your planned savings. Those savings include 401(k) retirement savings, IRA contributions, 529 college savings, health savings account contributions (HSA), and taxable savings as well.
Finally you’ll see a line at the bottom labeled “Spend Unsaved Cash Flow.” This figure represents any extra cash flow left over after subtracting all of your expenses, goals, tax payments, and planned savings.
This is how I help my clients answer the question: “How is my cash flowing?”
Because when you can clearly see…
What you have coming in
What you have going out in spending
What you have planned for goals
What you might owe in taxes
How much you’re planning on saving
And what (if anything) is left over
You’re suddenly in the driver’s seat when it comes to your cash flow.
You don’t have to rely on “trusting your gut” when you can “trust but verify” instead.
And when you get clarity around where you stand financially right now, you then get to explore what’s possible.
What would it look like if we bought a new house vs doing a major home renovation?
What would it look like if I took a lower paying job that freed up more family time together?
What would it look like if we rented a lake house for the whole summer?
Gaining clarity around how your cash is flowing is the first step to go from those “wouldn’t it be nice?” conversations to making it happen with financial comfort and confidence. When you know where your cash flow stands now, you can quickly model those “what-if?” scenarios and see how things would look, change, and feel — ahead of time.
Does it require some legwork upfront? No question about it. But in my experience, the juice is most certainly worth the squeeze here. And if you need someone to help guide you through the process, please know I’m here and happy to help.