We’re knee-deep in our series on mastering cash flow (a.k.a. your guide to tracking down where your hard-earned dough is taking off to).
Let’s hit pause and do a quick refresher. Cash flow, what’s that again? Here’s the 411—it’s a nifty tool that shows you exactly where your money is flying off to each month. It’s your income minus your expenses, all lined up nice and neat. Ever feel like your money pulls a Houdini act by month-end? It’s time to get your geek on and master the cash flow.
The secret sauce? Getting started! So, let me share my method with you. Here are three steps to kickstart your journey:
Step 1: Round up your financial papers
Start by collecting or printing your bank and credit card statements for the past 3 months. I usually don’t venture further back because, let’s be real, recalling what I had for breakfast is a challenge, let alone remembering that $84.93 Amazon impulse buy six months ago. Sure, you could dig through your Amazon history, but that’s not the point here. While accuracy is a biggie, the real goal is to get your spreadsheet up and running ASAP. Small victories are the MVPs here. Remember, budgeting is 80% behavior, 20% crunching numbers. The main thing is to get the ball rolling.
Step 2: Break it down into categories
Divide all your expenses into three easy-peasy categories:
- Income
- Fixed Expenses
- Daily Spending
Income is pretty straightforward—it’s the funds flowing in. Fixed Expenses are non-negotiables like mortgage, insurance, electricity, and car payments. Get detailed here. It’s easy to pinpoint these costs.
But when it comes to Daily Spending, keep it simple! This is where most folks hit a snag. They try to micro-manage every category, thinking perfection equals control. But does it really matter if you dined out or went to the movies? And those Costco receipts? Sheesh! Combing through every item would drive anyone bonkers. Instead, bundle ’em up. If you spot a spending black hole, then by all means, isolate and track it. But don’t make yourself crazy—it’ll only bog you down and kill your momentum.
Step 3: Whip out your highlighters
Now for the fun part! Grab three highlighters in different colors and assign them to your categories. For instance:
- Green Highlighter = Income
- Yellow Highlighter = Fixed Expenses
- Pink Highlighter = Daily Spending
Here’s the kicker: highlight each category one at a time. Start with green for income, then move on to yellow for fixed expenses, and finally pink for daily spending. Trust me, it’s way easier than juggling between them.
Just a note: I avoid red highlighters—they bring back traumatic memories of my 5th-grade teacher, who was too fond of her red markers. Pink feels much friendlier to me.
Pro tip: Frixion Highlighters erase with friction. They’re a bit pricey but worth it. No more psychedelic color blends from highlighting over errors!
And voila! Your statements are now a gorgeous rainbow of financial insight.
That’s your starting point. Next week, we’ll delve into setting up your spreadsheet and inputting your beautiful rainbow-colored data—so keep those statements at hand.
Catch you next week,
Avraham
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