Your Cash Flow Picture
Course Section
- Overview
- What Does Your Cash Flow Look Like?
- Monthly Income Worksheet (PDF)
- Monthly Expenses Worksheet (PDF)
- Semi-Annual and Annual Expenses Worksheet (PDF)
- Your Cash Flow Picture
- Cash Flow Adjustment Worksheet (PDF)
- Getting Organized
Here's What Your Life Looks Like
Good work! Now that you've completed these worksheets, you have a clearer
picture of the money that flows through your life. And if you think about
spending as an image of how you live your life, you also now have a clearer
picture of the life you lead. Take a few moments to review and absorb it. (You
can also print and keep it.)
What Do You Like About This?
What do you like about how this relates to your life? What's working just
the way it is (or has to be)? Are you able to pay bills on time? Are you able
to save and invest?
Now that you've seen what your life looks like today, are there things that you would like to change? Here's a way to compare your life today with how you would like your life to be.
Picture a Better Life
Do you see any places where you're spending too much? Can you imagine
yourself living with less, or without some items or activities? Only you can
decide the importance of the items or activities you might change in your life.
Whatever you decide is the right decision for you. Most of all, you'll be
in control and making decisions about the real priorities in your life.
Reallocate spending and reshape your life.
Do you watch the movie channels enough to warrant the monthly fee, or would you
be better off with movie rentals? Have you checked to see whether there's a
better phone plan for you? Could you do more errands at the same time and save
gas? Do you buy a gourmet coffee every day? A recent study revealed that daily
coffee buyers at the national coffee chains spend as much as $1,500 a year on
their coffee. Or perhaps you buy an ice cream cone every afternoon, smoke
cigarettes, or buy your lunch every day.
There are lots of things that we do out of habit that cost money. Looking at these monthly expenses may reveal new and easy ways to save.
Here are three simple guidelines for reshaping your life:
- Live within your means.
- Take care of your health, home, and basic living expenses.
- Find ways to reallocate your spending so you can put the money to better use.
Cut spending.
The first, best, and most reliable way to achieve financial success is to
cut costs. Think about it this way:
- $1 saved instead of spent is more than just $1. If you're in the 30% tax bracket, for example, you had to earn $1.30 in order to spend that $1.
Planning can be the best way to save and cut costs in all areas. Let's say you work in an office building where it costs $20 a day for parking. You may think that spending $100 a week ($20 x 5 days) is a necessary evil, but what if you parked a block away at the open lot that costs $5 a day? By walking a block, you could have $75 more each week to use in some other, more beneficial way.
Every time you reduce your costs, you're giving yourself more money to use for some other, more productive purpose in your life. Even if you do a simple budget you'll still find places to save money. Most of all, you'll know yourself a little better and feel more in control.
Tips on Adjusting Your Cash Flow
Adjusting your budget involves rethinking your spending options or goals. Once you've made adjustments, be sure to measure the progress toward meeting your goals. If things don't go quite the way you planned, make mid-course corrections either with your spending or by revising your goal or strategy.
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Keep your goal/change your cash flow.
Let's say that your goal is to buy a $21,000 car in three years. If you plan on paying cash, you'll need to save $7,000/year to get there on time. To find the money, you have some options:- Put aside a little extra of your income for savings each month.
- Put a portion of your annual bonus or salary increase into the car fund.
- Withdraw some money from your savings account, or sell some securities you own.
- If you still fall short, depending on your debt level, you might make up the difference with a car loan.
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Keep your cash flow/change your goal.
Of course, you might not want to dip into your savings or take on more debt. Maybe you could revise your goal a little:- Do you need $21,000 for a new car? Is there a less expensive model?
- Could you buy a used car?
- Could you revise your target date and maybe wait a year or two more?
Take Action
- To see whether you're a Hoarder, Splurger, or Avoider, take this fun quiz on the WIFE.org website.
- Compare your expenses to the national average for people in your income bracket (with a calculator from Bankrate.com). Based on information from the Bureau of Labor Statistics.
- Read AARP The Magazine's article on 25 truly useful ways to cut costs.
- Learn about 25 ways to cut costs painlessly, from WIFE.org.
AARP Resources
Cost Cutting Tips (PDF)
More from the AARP series, Money Matters.
