The Ultimate Cash Flow Checklist

If there was ever a hill to die on for a financial advisor it's the importance of having organized cash flow.

If you’ve read any of my other posts you probably already know that I consider cash flow to be one of the essential pillars of a healthy financial life. 

Organizing your cash flow for your business or personally, leads to:

1. Peace of Mind - Knowing how much money you should have in your bank account at any time

2. Clarity - You aren’t left guessing about what you think is happening

3. Better Decisions - Insight into the future means better decisions today

4. Being Prepared - When you know what is coming, you can prepare to handle it

So you can see why organized cash flow is essential to a healthy financial life!

If you're reading this and thinking, "okay that's all well and good but I have no idea where to start" then you're in luck. 

Here is my ultimate checklist for getting your cashflow organized:

1. Sit down and write out your goals

2. Start with what you know

3. Average past expenses to make educated guesses

4. Determine how much you’re going to pay yourself

5. Pencil it out

✅ Step 1: Sit down and write out your goals

You'd be surprised how much of a difference it makes to have your goals written down on paper instead of just rolling around inside your brain. So before we even start looking at dollars, you're going to take some time to think about what you want to do with your dollars.

Tip: write SMART goals

1. Specific

2. Measurable

3. Achievable

4. Relevant

5. Time-bound

Example: I want to pay off my credit card debt of $8,000 by December of 2023.

✅ Step 2: Start with what you know

No matter how disorganized your finances are, there are specific knowns that don't usually change month-to-month:

1. Rent/Mortgage

2. Cell phone bill

3. Insurance

4. Minimum debt payments

5. Payroll

6. Etc.

Get a dollar figure and a date for all of those recurring expenses.

✅ Step 3: Average past expenses to make educated guesses

We all know that we spend money on more than just bills each month. The challenge with these expenses is that they usually vary. If you look at those expenses over time, those variances average out to get you an approximate baseline value you can plan around.

Here's how to do it:

1. Print off 3 months of bank statements for all accounts you regularly use to make purchases

2. Divide up every charge into a category (groceries, eating out, shopping, gifts, gas, entertainment, etc)

3. Tally up the total for every category per month

4. Average out the amount per category across the three months

Step 3.1: Determine what is actually reasonable

Now depending on your current financial habits, you might look at these averages, and realize the amount you're spending on eating out is entirely unreasonable. Or you might realize that you aren’t spending enough money on entertainment.

The beautiful thing about this is you get to decide what is most important to you. The challenge is you don’t have unlimited money, so you can’t just spend everything on everything. By aligning where your money goes to your personal goals and values, you can maximize the value you get from your hard earned money.

✅ Step 4: Determine how much you're going to pay yourself

That's right, you're going to pay yourself. I am a big advocate of paying yourself before paying anyone else. What are you talking about Ryan? What I'm talking about is setting aside money for your future—as much as it's feasible inside your current budget, paying money into your savings and investing accounts should be a top priority.

Make sure to contribute money each month to:

1. Savings Accounts

2. Retirement Accounts

3. Investment Accounts

✅Step 5: Pencil it out

The final step is to walk yourself through one month in your bank account, and make sure you can fit everything in. The best way to do this, is to fit in all the “big rocks” (aka non-negotiables) first, then add in the smaller (negotiable) rocks.

For example, there are all things that have to happen each month:

1. You need to eat (not necessarily sushi and steak)

2. You need shelter aka to pay your rent or mortgage

3. You need to pay your bills:

• Phone 

• Insurance

• Debt payments

• Utilities

4. You need to pay yourself

• Savings

• Investing

And then there are things that tend to happen every month, but you don’t necessarily need those:

1. Music and video streaming services

2. Eating out

3. Shopping

4. Entertainment

Make sure you have all your big rocks fit into your budget first, then fit in your smaller rocks as there is room and according to your own priorities. 

After that, all there’s left to do is actually stick to the plan. 

P.S. If you want the pre-made template that I use to help organize my own cash flow as well as my clients, just send me an email at ryan@obpfinancial.com and I will get you a copy.