Financial Tracking

Cash Flow Tracking System

The first step in managing personal finances is a review of current financial information; net worth and cash flow. 

• Net worth is simply adding all assets and subtracting all liabilities. 
• Cash flow analysis is trickier. The hard evidence requires some form of tracking; a real problem for most people. 

Detail oriented people are the most capable and accurate, writing down and accounting for all forms of income and expenses.  But, often they will go nearly crazy in the process. The rest of the population, the majority, overlooks many details and the exercise is frustrating and of limited meaningful value.  

A Proven System

Technology provides the most reliable tools for accurately evaluating and managing cash flow. This process has helped hundreds of clients better evaluate and manage their personal finances.  

Requirements: 

• Basic computer skills
• Access to Online Banking, Bill Paying, and Debt Card(s)
• Quicken Basic or higher

Disclosure: Using computer based banking is sometimes a concern due to privacy issues.  Regardless of how banking relationships are managed it is always important to safe guard your privacy and identity: (1) Check your credit and verify accuracy at least twice a year and in the event of concern. (2) Pay attention to mail and emailed alerts sent by your financial institutions. (3) Review all accounts on a monthly basis and report any unfamiliar or questionable activity. (4) Destroy all financial documents (including receipts) before discard.

1. Request online statements for all accounts. 

2. Set up online bill pay.  It will take some time to input the information but you will save time and mailing costs each month you use the service.  Most banks offer online bill pay without fees.  If your bank charges fees you may want to establish a new banking relationship.

3. Plan your month in advance by setting up payments the last week of the preceding month (last week in June for July payments, last week of July for August payments) in order to avoid late payment of bills due on the first of the month.  

4. It is important to pay attention to processing times.  In the case of major creditors/service providers payments are sometimes transferred and received in one day.  For other payees it may take 5 to 7 business days because your bank will actually cut a check and mail it to the payee. 

5. Plan your deposits and make sure sufficient funds are available on payment dates. It helps to schedule all payments on the same day of the week (for instance Mondays or Fridays).

6. If your money management skills need improvement or you are experiencing stressful times make sure you have arranged for overdraft protection.

7. If your main objective is tracking cash flow and you use credit cards make sure you have online access to all account(s).

8. List and categorize spending.

There are four major categories of spending. Within each major category you will have subcategories; some common to all and some unique to you. There are no rules about how you prioritize your subcategories. The major categories are:

• Non-Discretionary Fixed Expenses: Absolute priorities and predictable from month to month or year to year.
• Non-Discretionary Variable Expenses: Absolute priorities that may fluctuate from month to month or year to year. 
• Discretionary Fixed Expenses: Non essential spending with predictable cost from month to month or year to year.
• Discretionary Variable Expenses: Non essential spending that fluctuates from month to month or year to year.

9. Never take extra cash when making purchases, it distorts spending reports.  If you need cash go to the ATM.  

12. Use debit cards for purchases..

13. If excessive spending is a problem (defined by unpaid or growing credit balances month to month) avoid using credit cards as much as possible.  Check credit card balances and pay them off weekly via online bill payment.  Making weekly payments is a great way to break the habit.

14. At the end of every month download all bank, and credit card account activity to Quicken.  Most banking and credit card companies are set up to make this process very easy.  

Warning: There are hundreds of options for setting up and using Quicken.  Some clients use this software extensively; for tracking and evaluating cash flow you can keep it very simple.

15. Go through the register report and categorize each line item using your unique set of categories.

16. Run a profit and loss report for the month and see where all the money went.

17. Don't get discouraged.  It may take one to six months before you get it perfected.  But, once you are using the system efficiently, the information is always at your fingertips! 

Copywrite: Susan Hammitt, AFC July 2008