Hi there! If you’re reading this article, then that must be because you want to learn of Cash Flow. There are a variety of ways to assess your financial health, one of the most useful is to look at your cash flow. This is useful because cash flow will tell you in real time what kind of financial shape you are in and it will show you if you are heading for trouble.
Preparing a cash flow statement is a fairly simple process and there are lots of computer programs that can help. It is a good idea for everybody to prepare a cash flow statement so that they can make sure that they are not headed for financial trouble down the road.
Cash flow is actually a very simple concept but it is critical to your financial budget plan. Cash flow is simple the amount of money you have coming in minus the amount that you have going out. In other words it is your total income minus your total expenses.
Cash flow can actually be calculated over any time frame but most people choose to calculate their cash flow on a monthly basis. In a lot of ways cash flow is related to your budget, a budget is a plan for how much you make and how much you plan to spend and what you are going to spend it on. Cash flow represents what actually happens. If your cash flow is positive you are in good shape, if it comes out to be a negative number you are going to have problems.
Calculating your monthly cash flow is a fairly simple process. All you have to do is add up all of your income and all of your expenses and then subtract your expenses from your income. Although the principle is fairly straightforward it is actually a little more difficult in practice.
The problem is that while most people can add up all of their income fairly easily adding up your expenses is far more difficult. All of those little expenses that you have throughout the day have to be accounted for. That coffee you buy every morning adds up to a lot of money at the end of the month. Most people seriously underestimate the amount they really spend. You are going to have to accurately track all of your expenses if you want to create a meaningful cash flow statement.
The reason that a cash flow statement is so important to your financial well being is that if it is done accurately it will clearly show if you are heading for trouble. If you have a negative cash flow you have a problem and it needs to be addressed. It should be pretty obvious that spending more than you make is a recipe for financial disaster and a cash flow statement will show you if this is the case. If you do have a negative cash flow you are going to have to change your spending habits before you wind up in serious financial trouble.