How to Organize Cash Flow

Video Transcript

"Present a topic on budgeting. Again, with the help of Expert Village, I hopefully will be able to help people and assist people in terms of developing a budget. In this clip we're going to talk about, we're in the home stretch here. We're going to talk about how we tie all the things together. Previously, we talked about the different categories that impacted the budget in terms of expenses. Now, this is how we're going to put everything together to determine the cash flow. The way that it works is you've got your income minus expenses equals? cash flow. And we want, obviously, the cash flow to be positive. Because that means you have extra money that you can use for saving, investing, paying off debt and those kinds of things. If it's negative, that's where we need to go back and look at the expenses and see if there's some things that we can change in the budget to get that to a positive thing. That could be the clothing that could be the entertainment. Because those kinds of items we have flexibility. Could be the food to a certain extent. The income - that is simply what you're bringing home in terms of revenue: from your job, if you own real estate, if you own rental properties - if you're collecting rent minus the expenses, that income - if you have investments - you've got money in the bank that's earning some type of interest. If you own stocks, if you own bonds or CDs. All that is income that can be used netted against the expenses to improve the cash flow. And the expenses again, just to summarize, those are those items that we had talked about. That's the housing, that's the utilities, that's the medical and dental, that's the entertainment, that's the transportation. So the expenses are all those category items that were determined on a monthly basis as costing you money. So this is things that are taking dollars out of your pocket that reduces your income. So again the expenses are the budgeted items that we went in detail for us. So you want to add those up, find out what those are on a monthly basis (those different categories), subtract it from the income - and we're going to use the income on a monthly basis - so again, if you're making fifty thousand dollars, you take fifty divided by twelve and then that's your monthly income. And that gets your cash flow. So, for example, say that your monthly income was two thousand dollars a month. Say your expenses are eighteen hundred dollars a month. So your cash flow would be a positive two hundred dollars a month. Okay? And this is the key. The whole point of this exercise is to look at your income, look at your expenses and determine if your cash flow is positive or negative. That's the key to a sound budget. Your budget should end up with a positive cash flow. So, the whole exercise is you need to understand and have a detailed accountability for your expenses. Subtract it from your income to give you your cash flow. And that's what we'll talk about next."