You can be forgiven for seeing a cash flow plan and a budget as one and the same. But in our experience, an effective cash flow plan is one of the most useful tools a business owner, incorporated professional or entrepreneur can use to organize and clarify their financial future. Or anyone for that matter.
A strict budget is like a strict diet. When you go over budget you feel like you have failed. Often being on a budget is associated with feelings of negativity.
When we use a budget to save, we tend to spend what we think we need to get by and then save whatever is left over at the end.
The problem with managing our expenses this way is we’re not prioritizing our goals and future ambitions. Our goals are what get us excited, so when we link these feels of excitement back to our spending it helps motivate us to get further ahead.
A cash flow plan empowers us to be intentional about our spending. It considers our behaviours around money, and instead of looking at our goals as something that’s nice to have, we make our goals achievable by putting them first.
When we get together to build your innovative cash flow plan, we organize your money into three pots:
- Committed expenses – These are expenses like bills and rent that rarely change from month to month. They aren’t always a fixed amount; they can fluctuate month to month like your hydro bill. But no matter what happens that month they have to be paid.
- Spendable expenses – This is the money we allow ourselves to socialize, enjoy our free time and pursue our interests. We work hard for our money so it’s ok to spend it. But remember spendable expenses are closely linked to our emotions, which is why it’s often easy to overspend (we all remember that impulse purchase we’ve made in the past to make ourselves feel better!).
- Money found – This is can put towards reaching your life goals and planning your financial future. It could be short term like a dream vacation or long term like buying your perfect home.
When we are tracking our committed and spendable expenses, we can be clear on the money we can put towards living the life we always wanted. It’s a highly recommended first step for business owners to get clear about what they’re spending and start planning for an exciting future.
If you want to learn how to clarify your cash flow to get closer to achieving your goals, visit our Contact Page to get in touch, we’d be happy to run you through our full financial Blueprint process.