Hi, this is Brittney Castro, Certified Financial planner, of Financiallywisewomen.com. Welcome to the 9 STEPS to Becoming a Financially Wise Women Video series.Whether you’re just starting your career, getting married, buying a home, raising kids, starting a business, approaching retirement, or simply taking control of your finances for the first time, now is the time to get the financial education you need to become a Financially Wise woman.Today we will review Step 4 of Becoming a Financially Wise Woman- Become a Master of your Cash flow.
Mastering your cash flow is an essential part to achieving financial success and the purpose is to make sure you are living within your means and saving toward your financial goals.
To become a master of your cash flow, first start by calculating your monthly income or cash inflow. Then calculate your cash outflow or expenses.
Break up your expenses into categories; Fixed expenses, which include mortgage, utilities, any debt payments etc, and Variable expenses which include entertainment, clothes, dining out.
Savings should also be considered a fixed expense, meaning if you think of your savings like a bill, make it automatic and take the emotion out of it. Your savings toward the different financial goals should be about 10-20% of your gross income.
If you are a business owner, make sure you create a separate category for monthly business expenses.
Then subtract your expenses from your income- if you are spending more than you earn, you will need to create a plan of action. You can either make more money or spend less money. The choice is yours.
If you are having trouble with your cash flow I would also recommend you track your expenses for 90 days. Keep a notebook and pen in your purse and every time you spend money, whether it’s cash, or card, write down how much and what it was. This will help you identify any spending habits and also identify your spending vises, those things we spend our money on even though we know we shouldn’t.
Then you can go back and analyze the areas you can cut back on if needed. For example, if you find that you are spending $500 per month on clothes and shoes, yet are not saving at all, this may be an area that you decide to cut back on.
I am a big believer in living for today but also believe we need to save for the future. Again, deciding what you want to cut back on is your choice but a choice that has to be made.
If you are a business owner or self employed, I would work the formula backwards. For example, if you have $3,000 per month in fixed and variable expenses, another $500 per month in business expenses and another $500 per month to save for your goals, then you will need a net income of $4,000 from your business.
Make sure you re-evaluate your cash flow on a regular basis. As your life changes so does your cash flow. For example when I transitioned into being an independent financial planner last year, I had to re-calculate my cash flow as I now have monthly business expenses that I have to add into my cash flow. So, any time a change occurs, you just started a business, had a baby, bought a home or retired, you need to review your monthly cash flow.
Remember, mastering your cash flow is not an easy thing to do, but it helps ensure you are living within your means and saving for your financial goals, an important aspect of becoming a Financially Wise Woman.
This is Brittney Castro and thank you for watching the 9 Steps to Becoming a Financially Wise Woman video series. Tune in next time for Step 5. Remember to Like us on FB