Businesses generate sources and uses of cash statement to evaluate their income and expenses and to check profitability. They also create a proforma which is a projection of future cash flows based on assumptions about growth/decline of income and expenses. Similarly, creating a cash flow projection can help you evaluate your personal income and expenses and see if you potentially may run ‘in the red or the black’ at a future date. Cash flow forecasting is made easy with this calculator.
Creating a cash flow projection for your life and not just your business lets you see whether you’re in the red or in the black. Then, you can evaluate whether you’re on track for good financial health in the future. In your personal finances, cash flow forecasting can help you see whether you spend more than you earn, and also help you correct course fast.
Calculating Your Cash Flow for the Future
At its most basic, cash flow just means money coming in minus the money you’re spending. Tally up your investment income, salary, side gigs and any other money you’re earning, then subtract all that you spend, and that’s your cash flow. Positive numbers are a positive cash flow, meaning your personal assets are growing. If you get a negative number, it may mean you need to adjust spending or income.
Your cash flow today will not stay constant. You’ll likely get raises, and you may get a new job at some point that will impact your earnings. Your expenses will also change, depending on what’s happening in your life.
When calculating cash flow, you will want to consider the following factors, which will impact your earnings and spending:
- Life changes, such as marriage or children
- Paying off debts
- The end of a fixed debt, like a personal loan or mortgage
- Retirement, where your income decreases
- Where you live
- Making choices, such as budgeting, to control your spending
You’ll want to run a cash flow projection regularly to account for these and other changes so you can keep an accurate picture of your finances and make sure you don’t overspend.
How Can I Create a Positive Cash Flow?
Over time, you’ll want your cash flow to stay positive. There are several things you can do to accomplish this:
- Save now for retirement so your cash flow is healthy after you stop working
- Cut expenses by considering what you really need and enjoy and what is not as important
- Pay down debts, especially credit cards and unsecured debts which charge you a lot in interest
- Find ways to bring in extra money by taking on passive income or an extra job
- Budget monthly, so you can keep control over where your money goes
- Find ways to save on necessities, by choosing more modest homes and cars or by negotiating with utilities and weather-proofing your home
- Think carefully before spending money
- Limit how much “walking-around” money you have in your wallet
Use our free calculator to get an accurate estimate of your cash flow, so you can make the best financial decisions possible.