Let’s get back to basics.
Create a Cash Flow Statement
I call it a cash flow statement because no one wants to create a budget. Some people feel that having a plan is restrictive, but plans create freedom. It is imperative that you know what is coming into your household and what is going out every month. Savings, Debt Management and even Career Decisions all start here.
If you find that your income does not cover your expenses, it’s easy to see that there isn’t anything for saving and your debt is likely to increase every month. If you find that you are $200 short every month and that $200 ends up on your line of credit, you start one month with $200 and the following month you add $200 and on and on. You get the idea. Not only is the debt increasing but you have also added a bill payment that does not fit in the budget. This is how easy it happens if you are not mindful.
What about Debt?
We hear a lot about debt today: Things like personal debt is at all-time highs; government debt is out of control. What does it all mean? What’s the truth? Is all debt bad? Where do you stand?
Understand Your Debt
It is critical to understand your debt. Where did that debt come from? Was it from a one-time event that was out of your control? For instance – were you out of work? Is your debt increasing every month?
Not all Debt is Created Equal
There is a big difference between debt that is creating an asset and consumer debt. When I speak about debt that is creating an asset I’m talking about a mortgage on a home or a course that was needed for your work. When I speak about consumer debt, I’m talking about the impulsive purchase of a big screen TV, a seventh pair of cute dress shoes or a new tool that you think is really cool but that you might only use once.
When your cash flow statement shows that you do not have enough flowing in each month to cover the expenses flowing out, there are two approaches you can take to fix this.
- You may find that there is a behaviour that needs to be addressed. I’m certainly not against big screen TV’s and shoes however impulse buying can cause problems. It’s so easy to see “a deal” that we can’t pass up and put on a credit card. If there are many impulse purchases in your history, look at these behaviours and put some limits in place. This is not to say that you can never do anything impulsive, but wouldn’t it be great if you had that worked into your budget and you knew exactly the amount of discretionary funds you had to work with?
- You may find that your purchases are all practical; that you are doing a great job and there is nothing in your cash flow that you can give up. Perhaps there just is not enough money coming in to pay your bills. If you find you are going to be $200 short every month – you have discovered that you need to earn another $200 a month. Maybe this is the year you talk to the boss about a raise. Make plans to do it. It could mean taking a second job. This could be taking something that you love to do and turning it into something that makes some extra money. Be creative.
Be Kind to Yourself
Be prepared to accept what you learn and do what it takes to control your cash flow. Give yourself a pat on the back because you have examined the situation and are taking steps to correct it. Contrary to popular opinion having a cash flow statement is liberating. It gives you the knowledge you need to take control. Yes, plans create freedom.
Imagine what it would be like if we all became mindful. ☺Mindful Money Management makes that happen when you spend, invest, and donate to create a better world.
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I’d love to learn about the impact you plan to make. Please feel free to contact me at [email protected] with your comments and ask to be included on the guestlist for my next Mindful Money Management Zoom Workshop. See you there!