• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Wealth Pilgrim

No Money Worries. No Matter What.

Neal Frankle featured in
  • Home
  • Life Insurance
  • Investing
    • Build Strong Investment Building Blocks To Avoid Going Broke In Retirement
    • Systematic Mutual Fund and ETF Investing
    • Stock Market Investing Guide
    • Choosing the Right Investment Brokerage Guide
    • How Bonds Work Guide
    • How Banks Really Work Guide
    • Annuities – What You Need To Know Before You Invest
    • A Beginners Guide To Buying Individual Stocks
    • Create A Pool Of Great Mutual Funds and ETFs To Pick From To Secure Your Retirement
    • ETF and Index Fund Investment Guide
  • Earn More
  • Banking
  • Retirement Planning
    • Retirement Guide
  • Ask Neal a Question
  • Reviews
    • Upgrade Personal Loans Review
    • Lending Club Review
    • Prosper Review
    • Ally Invest TradeKing Review
    • CIT Bank Review
    • LegalZoom Review
    • Lexington Law Review
    • Airbnb Host Review
    • Should You Drive For Uber?
  • Tax
  • Courses
    • Raise Your Credit Score So You Can Buy a House – Free Video Course

How To Use A Personal Statement of Cash Flows To Become Wealthy

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

Even if you are not self-employed, you should make your own statement of cash flows if you want to drastically improve your financial situation. Fortunately, it’s very easy to do. In fact, it will take you less than 30 minutes a year and the payoff is tremendous.

What is a personal statement of cash flows?

Before I answer that, let me give you some background. In business, a statement of cash flows is actually known as a cash flow statement. This report shows business owners how they generated cash and how they used cash throughout the year.

Now, you might think that every time a business generates cash it’s a good thing, but that’s not true.
Sure it’s great when the business makes a sale and they receive cash. But in a business setting, if you sell assets, you generate cash too and that might not be so good. That’s because you also decrease your ability to do business in the future if you sell off your assets…right? So in some cases, generating cash is potentially a bad omen for a business.

Conversely, using cash isn’t always negative. If a business invests in machinery it is a use of cash but it might lead to future growth and profits. Yummy. You’ll see how this relates to your personal finances in a minute.

For now, let’s just be clear. Business owners use cash flow statements to determine:

  • Is the company liquid? Can it pay its bills?
  • How is the company generating cash? Is it doing so by increasing sales or by mortgaging its future?
  • Is the company using its cash wisely?

Look over these three points above. You probably notice that it might be useful to apply them to your personal situation:

  • Are you able to pay your bills every single month?
  • How are you paying your bills? Where is the money coming from?
  • Are you spending wisely?

I meet people all the time who are able to pay their bills but are doing so by spending down their savings. Of course this is a recipe for disaster. If this describes you, the sooner you realize you have a problem the better.
How do you create a personal statement of cash flows?

1. Inflows of Cash

Here are all the questions to ask in order to create a list of cash flows into your household:

  • How much money did you take home last year?
  • How much did you receive in dividends, interest and/or capital gains?
  • Did you receive any distributions from retirement accounts, business interests or gifts?
  • Did you make any side income from a second job?
    These are all great sources of cash. Here are some other sources that aren’t quite as comforting:
  • Did you take on any personal loans or use a company like Prosper to arrange an unsecured loan.
  • Did you tap into any equity in your Home Equity Line of Credit?
  • Did your credit card balance rise?
  • Did you pull money out when you refinanced the mortgage?

These are all sources of cash too but as you can see; they paint an entirely different financial picture, don’t they?

2. Cash Outflows

Now let’s consider all your uses of cash.

  • How much did you spend on your standard of living?
  • How much did you give away?
  • How much did you save and invest?
  • How much did you pay down your debts?

These are all uses of cash and as you can see, many of them contribute to your long-term financial health. Don’t assume that every use of cash is bad.

At the end of the day, the inflows and outflows must equal each other or at least be very close. If you have large discrepancies, look again because you’ve overlooked some important items. You may have forgotten a source or use of cash. Of course the easiest way to keep a cash flow statement is to utilize a budget tracking system like YNAB (You Need a Budget) but it’s not the only alternative.

In my 28 years’ experience I am sorry to say that very few people ever take the time to create a statement of cash flows. Maybe it’s because they really don’t want to know. Of course I am not exactly sure why that is but I think people fail to look at their finances as if it were a small business. That is a huge opportunity they miss in my opinion.

By creating a personal statement of cash flows you’ll know exactly what is going right in your financial life and what needs attention. How else are you going to know what is going on? How else can you get to where you want to go if you don’t know where you are?

Do you create a personal statement of cash flows? If so, how has it helped? If not, why not?

Tweet
Pin
Share

Reader Interactions

User Generated Content (UGC) Disclosure: Please note that the opinions of the commenters are not necessarily the opinions of this site.

Comments

  1. Belinda @ Nextpay.com says

    May 7, 2012 at 8:27 PM

    One of Warren Buffet’s teachings and is also emphasized by many financial experts is the will to start out with proper monitoring of cash flow. This is the first step to understanding how money works in your life.

    Reply
  2. Cherleen @ My Personal Finance Journey says

    May 6, 2012 at 3:34 PM

    A friend taught me to ccreate a spreadsheet of our cash flow so that we will know where our money is coming from and going to. Though it showed that we are spending our money properly, it also revealed that we do not put sufficient amount in our savings and there is no adequate cash inflow. It was then that we started to look fior side gigs as well as investing in stocks and bonds.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Are You Human? * Time limit is exhausted. Please reload CAPTCHA.

Primary Sidebar

Who is Neal Frankle

Neal Frankle

I'm a CERTIFIED FINANCIAL PLANNER™ Professional with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
Read More »

Stay Connected

Facebook Twitter YouTube RSS

More Categories

Career Development
College Funding
Credit Cards
Credit Score Fixes
Money and Marriage
Debt Relief
Estate Protection
Property Investment Loans
Small Business Strategies
Spend Less Money

Disclaimer

Wealth Pilgrim is not responsible for and does not endorse any advertising, products or resource available from advertisements on this website. Wealth Pilgrim receives compensation from Google for advertising space on this website, but does not control the advertising selection or content. Please do the appropriate research before participating in any third party offers. The information contained in WealthPilgrim.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation. Wealth Pilgrim does not provide investment advisory services and is not a registered investment adviser. Neal may provide advisory services through Wealth Resources Group, a registered investment adviser. Wealth Pilgrim and Wealth Resources Group are affiliated companies. In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving payments,access to free products and services for product and service reviews and giveaways. Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.


About · Contact · Disclaimer & Privacy policy

Copyright © Wealth Pilgrim 2022 All Rights Reserved