Cash outflow is the amount of money that is going out to support your current lifestyle. This is not just the cash – it is all forms of currency that you use including cash, checks, credit or debit cards and loan proceeds.
Take your spreadsheet and determine an annual amount for all expenses and debt payments. Add the total of the fixed expenses, the variable expenses and the debt payments to get the total dollar amount of cash outflow for the year.
In another column or on a separate page you need to determine what your net income is. Gross pay means nothing when determining a spending plan. Take your net pay (the amount that you receive and have available to spend) and multiply by the number of paychecks you get per year – 52 if paid weekly, 26 if paid bi-weekly or 24 if paid semi-monthly. The net pay is the amount of your direct deposit or the amount you are cashing your check for. Do the same for your partner’s income if applicable. This gives you an annual net income wage amount.
Add to this net wage income amount any other income that you receive every year. Add in bonuses or commissions that you receive regularly. If you are receiving a pension, annuity payments, IRA distributions or Social Security determine the annual amount being received. Add in the interest and dividends received annually. Are you receiving spousal maintenance, child support, royalties or rents? If you receive a federal and/or state refund each year, include those dollars as part of your cash flow number. What other sources of income do you have coming in?
A quick check here – is your outflow equal to or greater than your inflow number? If not, I would suspect that you have left out information in your expenses. While they do not have to be exactly equal, they should be different by a very small amount (we recommend less than $500). If the expense number is a small amount, add in a miscellaneous number to make it equal to your inflow number. You will be able to allocate this better after a few more months of paying attention to where your dollars are going.
If there is a large difference between your inflow and outflow, you need to review your numbers because something is missing. One explanation for this can be an increase in your savings account. If the balance at the end of the year is higher than the beginning of the year, the net increase can be an explanation for some of the difference between the cash outflows and cash inflows.
Once this is completed, you now have the beginning of a spending plan. You now know where your money is going and what you have coming in.