The first step to taking control of your money and your financial life is getting a sense of your income and expenses.
How much money do you have coming in, and how much money do you have going out. In business, this is called a cash flow statement.
A cash flow statement breaks down the inflow of money as well as the outflow of money during a specific time period.
It helps businesses keep track of the available cash on hand they have to operate their business and the operational expenses of running their business.
Personal cash flow
To start taking control of your money, you need your own personal cash flow statement to help you determine how much money you’re making and how much money you’re spending on your day-to-day expenses and lifestyle.
At first glance, this might not seem like the first step you need to take to become more efficient with your money because most of us figure we already have a good handle on our income and expenses.
We figure we know how much we’re earning because we get our paychecks bi-weekly or monthly, and we pay our bills on time.
However, most of us don’t actually know how much we spend each month, especially when we throw in subscriptions, Amazon Prime, Target and Walmart runs, and impulse purchases.
A 2020 survey conducted by Mint found, 65 percent of Americans said they don’t know how much they spent last month. In comparison, 77 percent find it easy to spend.
Because it’s so easy to spend and sometimes overspend, you need to keep track of your spending habits and expenses.
It’s also important to be crystal clear on your income. Where does your money come from, and how much are you making? This one might seem like a no-brainer, but when I first moved to the US and started working, I earned $10/hour at a telemarketing job.
Because I was paid hourly, if I missed a day of work or came to work a few hours late, that would impact my paycheck, which was paid bi-weekly.
So if I make $10/hour and work 40 hours per week, my expected net monthly salary would be (10 x 40) x 4 = $1600/month.
However, as I mentioned earlier, if I missed work or came in late, my monthly salary would be reduced.
This is why it’s essential to keep track of your income because small changes can impact your take-home pay, and you need to know how much you make to see how much you can afford to spend. Or how much extra you need to earn to live your desired lifestyle or reach a savings goal.
But what if I earn a salary?
Even if you earn a salary, you still need to know how much you make each month. If you earn $60k per year, how much are you taking home each month?
Once your income taxes, 401k deductions, and healthcare deductions are made, how much is deposited into your account each month?
Again knowing this number is important to help you keep track of your personal cash flow.
The simple act of creating your own personal cash flow statement will help to alleviate much of the stress and anxiety surrounding money and will empower you to take the next steps in your financial journey.
Knowing is half the battle
Half the battle to becoming better with your money and setting yourself up for financial success is knowing where you stand with your money. Knowing how much you’re earning and how much you’re spending each month will help you make key financial decisions or make adjustments to your finances.
There’s also something to be said about actually seeing these numbers on paper. Visualizing will give you more context and insight into your financial life.
For me seeing clearly how much I was earning each month was a form of motivation. I realized that making $10/hour wasn’t going to cut it if I wanted to buy a house or live a certain lifestyle.
Related: Tips on buying a house for the first time
My problem was I kept comparing my $10/hour salary to what I was earning in Jamaica. At first, I felt a little satisfied that I was earning a little more than what I would be making in Jamaica, but I soon realized that the cost of living in the US was much different, and it didn’t make sense to make that comparison.
Instead, I realized I needed to focus on ways to increase my income and earn more money.
Keeping track of my expenses also helped me to understand my spending habits and where I was splurging. One area that stood out was how much I spent every time I went to Walmart or Target.
Each time I went to Walmart or Target, I spent over $150 on personal care items, housing essentials, and various novelty items like books or makeup.
Nothing is wrong with splurging, but we at least need to know what we’re splurging on and if it serves or needs or makes financial sense.
Personal cash flow statement template
If you’re ready to take the first step to improve your relationship with money, grab the Brave Self Starter personal cash flow statement, I use to track my monthly income and expenses.
Unlike a budget, this gives you a clear picture of your income and expenses so you can understand where you stand with your money and what you need to improve to reach your financial goals.