The Importance of Cash Flow Analysis and Planning, Part 2
Now that you know the fundamental basics of cash flow analysis, let’s take a closer look at this component of your successful wealth management journey.
Understanding your cash flow leads to better decision-making. So, once you have a thorough grasp of how and where your cash flows in and out, you can start the process of analysis and planning. We want to help you make the best financial decisions now and for the future, so let’s take a closer look at the process of cash flow analysis and planning.
1. Identify All Sources of Income
Your first step is to identify all sources of current and potential income. Income might include:
- Self-employment income
- Rental income
- Interest income
- Investment income
- And others
2. Track Every Dollar You Save and Every Dollar You Spend
Next, you need to create and maintain a definitive list of all your expenses over time. These will vary among expenditures that are paid daily, weekly, monthly, quarterly, or annually. Your list of expenses should include everything you spend your money on, such as:
- Rent and mortgage
- Car payments and maintenance
- Insurance payments
- Credit card payments
- Credit card annual payments
- Gift-giving and holidays
- and so forth.
There are plenty of tools available to help track your current and projected cash flows, expenses, and budgets. You can use online tools, mobile apps, or spreadsheets, or a personal financial advisor can help.
3. Cash Flow Analysis is the Key to Savings and Choices
Once you have a grasp on how your cash flows in and out, you can look for ways to be more strategic with your finances. Perhaps you can find savings in better insurance rates, credit card fees, or other areas. Most importantly, you’ll see where you might have or be able to create income opportunities, which can help you work toward your financial goals.
4. Cash Flow Analysis and Planning is where Wealth Management Begins
Understanding the flow of your money allows you to analyze your choices and make the best decisions for you, your lifestyle, your family, and your future goals. For instance, do you want to buy the most luxury-rated vehicle you can afford? Or, do you want to buy a more standard car and perhaps use the difference in cost to save for a boat, a vacation home, or invest in your future?
Likewise, if you’re thinking about buying a home, upgrading, or moving, do you want to buy the largest house you can afford? If you are handy, would you fare better in purchasing a fixer-upper that you could flip, or allow it increase in value, rather than spending on new construction? Are you considering looking at an early pay-off to build the most equity as quickly as possible, so you’re not house-poor over an extended period?
Cash flow analysis and planning is not easy, and the decision-making process can be stressful with all of the factors to consider. Fortunately, you are not in this alone. Our team of wealth management advisors is here to help you plan and pursue your financial goals in the ways that work best for you.
Whether you are just getting started in learning the financial basics, or looking forward to retirement, gaining a strong knowledge base of your cash flow is the first step. To begin to process or for additional information, feel free to reach out to any member of our team at Hapanowicz & Associates, or you can reach out to me directly, at email@example.com.
We look forward to getting to know you.