How To Calculate Cash Flow
Knowing Where You Stand Financially

Cash flow is all about the flow of money into and out of your life. You need to know how to calculate cash flow if you want to have an accurate picture of your financial health on a monthly basis.

We recommend that you plan your cash flow for at least 6-12 months, and then calculate your actual cash flow every month (at the beginning of the next month) when you first start.

You may enjoy knowing exactly where you stand, so you'll want to continue your calculations for years. Or you may not enjoy it, but know that it's necessary to get your finances on track, especially if your goal it to protect your family's financial future.

If that's the case, you may only need to calculate your cash flow for the first 6-12 months. After that, you may develop a feel for knowing, almost to the penny, where your money is going, and how much is coming in.

Income and Expenses

To calculate cash flow, you need information about your monthly income and your monthly expenses.

The hardest part of any calculation is usually gathering up all the information that's needed.

Some people have no idea how much money they spend on certain items, such as that wake-up coffee on the way to work, or that quick bite for lunch.

If you don't have a clue, or have only half a clue, how much money you spend each month, and on what, you'll need to start tracking all of your expenses.

Keep a small notebook and a pencil with you for those purchases or expenses where you don't receive a receipt. For all others, keep the receipt.

Store them together until the end of the month, at which time you'll do your monthly cash flow calculation.

Income

Income includes every dollar that comes into your life. This means:

• Your weekly, biweekly or monthly paycheck (from one, two or more jobs), plus the income of any other family member.
• Commissions and other money received from a small online business or offline business.
• If you're retired, your pension plan check(s), plus any money you receive from withdrawals from your IRA or 401K (in the United States) or your RRIF (in Canada) or retirement programs in other countries.
• Annuity payments.
• Interest earned on deposits, certificates of deposit, loans made to other people.
• Dividends you receive from company shares you own.
• Rent received from property that you own.

There could also be income from windfall (usually one-time-only) items, although some of these can't be budgeted for.

• Inheritances.
• Tax refunds.
• Cash from the sale of items you already own (vehicles, electronics, toys and games, etc.).
• Winnings from lotteries, raffles, betting, etc. (We hope that you're serious about investing in silver and gold and don't gamble your money, and your future, away.)

Expenses

Expenses include every dollar that leaves your life, including:

• Rent or mortgage payments.
• Utilities, including water, gas, electric, internet, cable or satellite TV, garbage pickup, etc.
• Car payments and car maintenance and repair expenses.
• Life, house and car insurance payments.
• Food and drinks.
• Entertainment.
• Loan and credit card monthly payments.
• Investment and retirement fund payments, such as monthly silver and gold purchases, mutual fund purchases, and IRA or 401K deposits.
• Anything else that you pay for with cash, a check, or direct debit, or have withdrawn directly from your bank account.

Based on the cash flow definition discussed here, we're ready to get started on a cash flow calculation.

How To Calculate Your Cash Flow

Once you have the documents for all your regular income sources and all the receipts and notes for your regular expenses, add up all the income numbers, and then add up all the expense numbers.

Now it's a simple arithmetic problem—subtract the expenses from the income. The result is either a positive number or a negative number.

If the result is a negative number, then you have negative cash flow (more going out every month than coming in). If the result is positive, then you have positive cash flow (more money coming in than going out).

What It All Means

Negative cash flow lowers your savings every month, as you have to dip into your account to cover your shortfall. Positive cash flow increases your savings every month, as those extra dollars left over after paying every expense go into your bank account.

What we've just discussed here is what amounts to budgeting, or at least to the tracking side of budgeting. Many people run for the hills or hide in a dark place whenever they hear mention of the word "budget."

If you're one of those people, simply remember that tracking your expenses is more than half the battle. Once you know where all your money goes every month, you'll soon have an incentive to lower your expenses, including expenses in your home and food expenses.

And reducing expenses is the easiest way to increase your net worth, especially since the savings are in after-tax dollars. Every dollar you don't spend is worth $1.25 or $1.50 or even $2.00 in pre-tax income, depending on your tax rate.

Summary

Now that you know how to calculate cash flow, you know how to determine, well in advance, which months will have a positive cash flow and which will have a negative flow. You can then plan ahead, knowing that you may have to work extra hours or have a garage sale to meet the shortfall.

Then, soon, every month will have a surplus. What you do with those extra dollars is up to you, but we hope that you'll build up an emergency reserve, then use the rest to pay down debts and purchase hard assets, such as silver and gold.