This week’s post focuses on the third step (part 3) on how to build a cash flow management plan. Organizing your budget categories is the precursor for laying out your budget on paper.
In the past two weeks, I have covered how to get started and the gathering of data. Now it’s time to organize the data we collected.
In the last post, I had you write down every transaction with the date, payee, amount, and what type of transaction (i.e. groceries, fuel, credit card payments).
Based on the data you collected and transaction types, write down all the transaction types on a piece of paper. Next to each transaction type, write in the total amount spent on each category. Keep in mind, this really should be over a 30 day period to get a sense of what you spend in a month.
Total up everything spent and write this amount at the bottom of the page. Next, subtract your monthly net income from your total expenses. If you live on an unpredictable income, then take the average of your highest and lowest months.
If you have a positive number, you are spending more than you make. If you have a negative number, then you have some wiggle room in your budget.
Regardless, you now have a baseline for the next step and blog post; prioritizing and goal setting.
Question? Does anything in your spending stand out to you?