In my last post I wrote about the differences and benefits between Net Worth and Cash Flow to the conclusion that both are useful but it’s the cash flow that will in fact determine what’s going on with your finances. I was going to use my own personal examples to illustrate cash flow until I came up with a rough cash flow on paper that made me pause to thing. Ok lets be realistic it didn’t make me pause, it hit me like a ton of bricks. I knew I was spending more than I was bringing in but I honestly didn’t think it was completely out of control and I have a feeling there might be more than one person out there in the same shoes I was in.
So my cash flow is off, it can’t be that bad can it?
Well in my case it really was that bad, after compiling the list of everything that I spend money on in a month I was about $760 off each month. I’m still using estimates at this point which I think I’ll stay at until I tabulate my spending at the end of the month and plan for next month. If anything that number is a bit conservative. Now comes the bigger question:
Why is it so bad?
Because I don’t pay close enough attention to my money is the first and most important answer. But that’s also not drilling into the actual cash flow to see what’s going on and why the spending is so high. Without turning this into a long list of line items here are a few things that I found that were a bit on the high side (and not necessary side)
- Smoking ($200/month) – smoking is expensive there’s no ifs ands or buts about it. The worst part about this type of spending is that you don’t see the money going out in big chunks but in small $10 increments.
- Lunches ($200/month) – Again this is something that can be trimmed down significantly by taking lunch to the office.
- The gym ($150/month) – ok before anyone screams at me about the high cost of that; this figure includes personal training sessions that have long been finished but need to be paid for. I’ve got 2 months left and I can leave the gym penalty free.
- Wine ($300/month) – I like my wine and I don’t always buy the cheap stuff.
I just pulled out a few things there and very quickly I can add up to that $760 that I’m spending over what I’m brining in which leads us to the next question:
So now what?
The list above really does hold an answer, but only a partial one. Quitting smoking isn’t necessarily an easy thing for everyone and it might take some time. I went through the items that really could be cut down without forcing me to completely stop enjoying my life and here’s what I came up with:
- Quit smoking – its time to get this out of my life ($200/month)
- Bring lunch on most days ($100/month) – I’m being realistic if I cut the cost in half I’m doing good.
- Pay off the gym now since I have some extra money and close it down. ($150/month)
- Cut the wine drinking – I’m thinking if I cut this down by half I probably won’t notice the difference as I have a glass with dinner ($150/month)
- Temporarily get rid of the $50/month going to mutual funds. Saving is incredibly important and if I was only $50 a month over on my cash flow this wouldn’t be an issue.
- Cut down going out and food costs wherever possible, about $100/month is reasonable without any impact to my current life.
Some of you might ask why I’m trying to reduce costs without impacting my life and the simple answer is I enjoy it and I want to see if I can take the cash flow situation under control without going to a dramatic extreme. I want to bring it into balance and then I’ll be able to realistically look at what I can do and what I am willing to do to increase my debt payments. If it turns out that I need to take some more extreme measures to just get it under control then I will.
The final point of now what is that going forward I’ll be using a cash flow statement on a monthly basis to track my progress and set my goals. Just getting it from being so far out of whack is the first step.
[tags]cash flow, spending, controlling cash flow, money[/tags]