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One of the secrets to accumulating wealth is to live within your means. That means that you cannot spend more than you make – even if the credit card has a zero balance and the store is offering you 0 percent interest for the first 12 months. This sounds basic, but America has a spending problem that needs to be fixed.
Cash flow is to your personal finances and business as gasoline is to your car. Without gas, your car will just sit there. Without good cash flow, your business will fail and your personal financial situation may get bleak.
For starters, prepare a detailed income-and-expense analysis to determine if you are living within your means. For income, you have a few ways to look at it. First is your pay stub. This will give you the details of your income and any withholdings for taxes, insurance or savings. The net pay is what is available for spending.
Another way to examine income is from your bank statements. Take a look at your deposits for the past few months. For those with savings or investments, don’t forget to add in the interest or dividends that you may be receiving.
For investment real estate, I like to look at each property separately and come up with one net number for net income or net cash flow loss from your rental property. Do not take the number for real estate from your tax return because that will include depreciation as one of the expenses. And depreciation does not affect your cash flow.
Next is the expense side. Some expenses – especially little cash expenses such as coffee or lunch – may seem difficult to track, but it has to be done. You can track these little cash expenses in one of a few ways. You can literally carry a notepad and record every cash expense. You can use your debit card for everything – but don’t forget to have the store clerk ring it up as credit or else the bank may ding you 35 cents or so for the debit use.
You can also use your ATM card to get cash on a regular basis and include that regular withdrawal in your expense analysis. If you have a financial plan, and know how much you need to save for retirement, college or whatever else you’re saving for, include that in your list of expenses.
If you want to stay on top of your cash flow regularly, consider using a program like Quicken to pay your bills and record your income.
Printable Version
John P. Napolitano
U.S. Wealth Management
uswealthcompanies.com
Phone: (781) 849-9200
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