How to Optimize Your Cash Flow by Creating a Budget

With budgeting you can make the most of the cash you have coming in.

While some choose to spend freely, buying things at whim and tending to their immediate desires above all else, others elect to optimize their cash flow by carefully budgeting and planning their spending. Through the process of budgeting, you can reduce the likelihood that you end up cashless at the end of the month, wondering where all of your money went. Though budgeting does require a careful exploration of your spending patterns and detailed planning, it is a task that nearly anyone can undertake.

Instructions

1. Catalog your current spending patterns. Start by determining where your money is going now. For several weeks, save receipts and bills, keeping a record of every dollar you spend. At the end of your allotted time, divide up your receipts and bills into categories, adding them up to get a total for each category and to see clearly where all of your money is going.

2. Prioritize your expenses. Write all of your categories on a sheet of paper and number them from most to least important. Use this prioritized sheet to adjust your spending, aiming to dedicate more of your money to the most important things and less to the least. For example, your housing costs will likely rank high on your prioritized list, making this something on which you should spend cash. Your daily latte, however, may rank lower.

3. List ways in which you could cut costs. Focus on your lower-ranked items, writing down one or two ways in which you could save money in each of these categories. For example, if you consume a lot of your cash by dining out, limiting yourself to one restaurant visit per week could be an effective way to modify your spending.

4. Write a budget plan. Create a list of the categories you selected, placing them in order from most to least important. Next to each, include the amount of money you will spend in that category each month. For a more detailed plan, include a breakdown. For example, if you are budgeting for groceries, you could break your $400 total allotment into $75 for each week and dedicate the remaining $100 for incidentals.

5. Plan to invest. After mapping out how much money you will spend each month, allocate the rest to savings. By making saving cash part of your budgeting plan, you can reduce the likelihood that you simply blow your surplus at the end of the month.

6. Review your spending each month to determine whether or not you are adhering to the plan. By revisiting the plan regularly and making modifications as necessary you can improve the effectiveness of the plan and increase the likelihood that you stick to it.

References

• RBC Bank: Optimize Cash Flow
• CNN: Making a Budget