Creating a Monthly Cash Flow Budget: A How to Guide

If you’re trying to save money, you should start by creating a monthly cash flow budget so you know exactly where your money is going and areas where you can possibly cut back. Cash flow budgeting every expense and keeping track of your income might seem daunting, especially at first. But once you start, you’ll appreciate the knowledge and control it provides. Below, you’ll find a guide to help you get started.

Think Ahead

Don’t wait until the beginning of the month to start cash flow budgeting. It’s important to plan for the future, give yourself time, and really examine your income and expenses. You can’t do that properly once you start paying the month’s bills. 

Cash Flow Budget Planning

Start with the easy stuff. Download a budgeting app or purchase a physical budget planner, and input your income. Next, put in all your fixed expenses. Most of your bills will fall under this category since most bills are the same price every month, such as your mortgage/rent, car payment, and insurance. After that, you need to budget your non-fixed expenses, which can include water, gas for your car, electric, and any extras, such as dates or outings with friends. It’s important to factor in every possible expense, and when it comes to the expenses that vary in price from month to month, you should always round up.

Not Every Month is the Same

Creating a cash flow budget isn’t really a one and done task. Your paycheck and expenses probably vary a little each month, which is why it’s important to create a new budget every month that includes all the variables. For instance, you might have a doctor’s appointment one month, your dog might need shots, or perhaps it’s time to have your car inspected. 

Think Ahead

Physicals, vet appointments, and oil changes are all bills that recur; they just don’t recur monthly. Since you know you’ll have to pay for them eventually, you should set aside a little of your income each month so that you’re prepared when the time arises. 

Dream it, Plan it

While it’s important to focus on the now and plan for the month/months to come, it’s also important to think about your long-term future. Where do you want to be financially in 5 years? 10 years? Do you want to be out of debt, own your car, own your home? These are things to think about when creating your cash flow budget. Why? If your goal is to be debt free, you need to look for areas of unnecessary spending. Take that money, and use it instead to pay off credit cards faster. If you want to build a nest egg, perhaps you should consider cancelling cable and putting the money straight into savings. It’s great to have dreams, but if you want them to turn into reality, you should make plans as well.

Remember Fees

It’s easy to forget about fees. Maybe your bank or a credit card has a monthly or annual fee. You have to factor these small expenses into your budget, otherwise you might find yourself dipping into savings to cover your mistake. 

Don’t Budget Every Penny

You should know exactly how much money your make and you spend each month, but you shouldn’t allocate every penny towards bills. It’s important to leave a buffer in the bank in case something unexpected happens or you accidentally overlooked a bill. Keeping a small buffer in your checking account will protect you from overdraft fees.

Use Self Control

Creating a budget is step one. Sticking to it is step two. Use our cash flow budget template to get a good start right away. Once you’ve created your budget responsibly, allowing for savings or debt payoff, you need to treat whatever extra you may have for dining out or entertainment as non-negotiable. That means, if you run out of your budgeted funds, you don’t go out and charge the meal or movie to a credit card. It’s important to hold yourself accountable when it comes to budget planning. Every dollar counts, and being responsible now can pay off big in the future. 

Creating a cash flow budget, and sticking to it, helps you keep track of your spending and sets you up for success in the future. Be diligent, create a new budget monthly, and give yourself time to remember everything you should include each month. It might not be a fun task, but the reward is financial responsibility, and eventual financial freedom.