The foundation for money management is the establishment of a budget. Now budget is the last word most people want to hear because it’s synonymous with the word diet. Normally a diet or budget is built in order to limit things that you like in order to gain in the long run. I’m not asking you to do this.
I want you to do a few simple things that will change your financial life forever:
- Figure out how much money you make every month
- Find out how much money you spend every month
- Subtract the two and find that number
Examples
Example 1:
Monthly Income – Monthly Expenses = Positive Cash Flow
$4000- $3000 = $ 1000 (Positive Cash Flow)
Example 2:
Monthly Income – Monthly Expenses = Negative Cash Flow
$4000- $4500 = -$500 (Negative Cash Flow)
Analysis
As you can see in the 1st example there is a good amount of left over cash after expenses has been paid, this is amazing because most people don’t have this much money left over at the end of the month. Unfortunately in the 2nd example this person has a negative cash flow because they spend more than what they make. Commonly this is due to them spending all of their paycheck and then putting an extra $500 they don’t have on a credit card.
In conclusion, the key to an understanding of your finances is to know how much you make and how much you spend every month. From this position you can decide if you want to make adjustments or leave things as they are.
Thanks a lot for reading my blog, like or comment if you want your voice heard. Have a good one.
Personal Finance 101 