Most people have not saved as much as they would have wished. The reason is not that they did not intend to save, but that they did not have a system. Lacking a system makes it very easy to be distracted by the many opportunities to spend earnings. Setting up a cash flow management system to help you live within your budget can help put you back on track toward meeting your goals. With a proper system in place, you will be well on the way to controlling your cash flow, rather than letting it control you A cash flow plan will function best if it reflects your goals, whether longterm or short-term. The purchase of a pleasure boat in three years or the decision to remodel your basement next winter should influence your cash flow plans. The goals that you have already set should help you shape your personal version of this system, so it is important to refer to them often. What should your system contain? There are four factors that will help you establish control over money:
In short, your cash flow management system should examine all financial transactions over a year-long period, with income and expected expenses for each category broken down on a month-to-month basis. Included in those month-to-month expenditures should be a portion for savings for both short-term and long-term needs.
It is also important to include in your monthly cash flow schedule a portion for your savings and investment program. Consider it an obligation just as important as any other monthly obligation. One easy way to accomplish this is to set aside a portion of your monthly paycheck. In addition to saving a portion of monthly income, I would strongly urge that any money saved by tax planning each year be invested the following year. This will give you an additional source of investment funds as well as a means of reducing income tax liability on a regular basis.
