Cash Flow is the Core

Investing is very important to make sure that your assets do not lose value over time to inflation. Leaving your assets in cash, will lose value over time becuase inflation will cause the price of things to go up faster than the cash will generate interest. Before you can invest though, you need to make sure you understand your cash flow so that you know how much you need each year to pay for your lifestyle and to know how much you can save for the long-term. 

Having a good handle on your personal cash flow is at the core of being able to build your financial life so that you can live the life you want to live. The best way to have a good handle on your personal cash flow is to understand what you are spending your money on each month. Below is what to do in order to start tracking and understanding where your cash goes each month:

1. Aggregate all of your financial accounts (Mint.com, Copilot Money, Tiller, Rocket Money, Simplifi, etc.). I personally use Mint and Copilot Money. Copilot is great for categorizing and adding notes every couple days as you go through the month. 

2. A couple days once the month is over (gives your accounts time to process transactions that might have happend at end of the month), go to Mint/Copilot or whatever app you chose to use and export your prior month's transactions to excel. 

3. Separate your inflows (credits) and outflows (debits).

4. Categorize your inflows and outflows. For inflows, you usually want to categorize where your income is coming from. Do you have multiple income sources? You break them out now. For outflows, you can categorie however makes the most sense to you. I personally break out into the following categories:

   1. Mortgage/Rent

   2. Utilities

   3. Car Payment

   4. Gas

   5. P&C Insurance (Home/Renters/Auto/Umbrella)

   6. Medical Expenses (towards health insurance deductible)

   7. Food Out (restaurants, etc.)

   8. Food In (groceries)

   9. Extra/Miscellaneous (this covers EVERYTHING not covered in other categories)

   10. Yearly Expenses

       1. Life Insurance (if applicable, most likely not monthly)

       2. Property Taxes (if applicable, most likely not monthly)

       3. HOA Fee (if applicable, most likely not monthly)

5. You need to make sure you also take into account charitable giving, taxes, savings, and insurance. Some of these might be taken out of your paycheck before it arrives at your bank account though. 

6. Track your inflows and outflows by category each month as the year goes on and start to see what you are consistently spending in each category.

7. Figure out if your spending is sustainable (outflows are less than inflows) and if not, figure out where you can lower your expenses. 

If you have questions or comments, please reach out to us at team@cashflowisthecore.com. We are happy to help you work through this. If you would like to have us work through your transactions and put together an analysis of your spending, let us know!