Cash Flow Statement

Chances are that just by completing the Cash Flow Statement you've learned a lot about where your money is going, but let's take a look at the results.

Net Cash Flow: What is your net cash flow?

• Negative cash flow: The way our chart is designed, your net cash flow is unlikely to be negative. If it is, review your entries. Is there income you haven't accounted for? Did you overestimate certain expenses? Could you have put a yearly amount in a monthly column?
• Persistently negative or low cash flow: If your net cash flow is small or, even after checking your entries, slightly negative, you are probably spending everything you have coming in. Since you listed savings as an "expense" that may be fine. But, if you are not satisfied with the amount you are saving AND your cash flow is low or negative, start thinking about ways you can increase your income or decrease your spending. See Increasing Income and Spending Less.
• Large cash flow: If your net cash flow is large, where is the money that's unaccounted for? Is this money you have but have not invested? If so, consider investing the money that might be sitting in your checking account or in account cash. On the other hand, if your cash flow is large but you don't have the extra money, review your entries again to try to find out where it has gone.

Savings: In light of your financial goals, are you saving enough? If you want or need to save more, review your statement to get a fix on where you can save more by cutting back on other expenses. Note that while in general financial planners consider a savings rate of 10% of gross income as acceptable, you should try to save even more if you don't have enough money to see you through a potential period of disability. Of course, if you are disabled or retired, and spending down your savings, you might not be able, or need, to save at all. To learn more, see: See Setting Financial Goals.

Interest Payments: This amount only includes "bad" interest. We call "bad interest" interest you pay on anything but a home. That's because mortgage interest (the interest you pay on a home loan) is tax deductible, usually at a lower interest rate than the interest on other types of loans. Plus, the money is used to attain ownership of an asset that, in the long run, usually increases in value. For more insight into your debts and how to pay them down, see Managing Your Debt.

If your interest payments seem excessive to you, they probably are. Ideally this number will be zero. Realistically though, the average American is paying interest on about $8,000 of credit card debt alone -- that's over a $1,000 per year in interest!

Housing: This is the total amount you spend on housing costs, including insurance and property taxes (if any), but not including household expenses, like utilities or repair bills. A commonly accepted standard is to spend no more than 25% of your gross income on housing costs. If you live in an urban area, it might be okay -- and necessary -- to spend as much as 40% of your income on housing. If the percentage of your income that you pay on housing is any higher, moving to a less expensive home could greatly improve your cash flow.

Medical Care: This shows how much of your income pays for medical care. Think about how this number could change.

• If your physical condition changes, might you pay more or less out-of-pocket for medical care?
• What if you leave your job and have to pay COBRA premiums?
• Do you need to budget for an increase?
• Are you getting the most out of your insurance?

To learn more, see: My Budget, and Saving Money for Disability.

Taxes: Honestly, we're not trying to rub it in here. Seeing how much of your income goes to taxes should remind you to do what you can to minimize them. See Income Taxes to find ways to minimize them -- even if you are on or could go on disability.

Emergency+Fund: An Emergency+Fund is money you hold for emergencies and other "just in case" situations (such as a new cure that is expensive and not yet covered by insurance). Consider keeping three to twelve months of expenses in a highly liquid account such as a savings or money market account. There is no magic formula to determining the amount to have in this fund. However, the following factors can help guide you to set three, six, or twelve months of expenses (not including taxes) as a goal.

To learn more, see: Emergency+ Fund.

Regardless of how your cash flow statement looks, there's always room for improvement. Remember, you want to be on as solid financial footing as possible to meet your financial goals. To help improve your cash flow, see Budgeting, Your Net Worth, Spending Less, Increasing Income, and Saving Money for Disability.

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