A key part of personal financial planning is calculating your cash flow. Your regular expenses not only include your non-discretionary expenses, but all of your common expenses. If you ignore this fact when calculating your expenses, you will create an incorrect picture of your cash flow.
Most everyone remembers to include expenses like housing, utilities, transportation and food when calculating their common monthly expenses. These are basic necessities that are a part of life. For most people, these items will represent the largest part of their overall monthly expenses. Unfortunately, many people forget to consider other expenses as part of their financial picture. This can create a very misleading picture of their finances. Although many expenses are voluntary, they are an important part of your overall financial picture.
Some things can be difficult to remember because they are paid through automatic billing or they are not paid monthly. Examples of this are insurance, gym memberships, cable tv and newspaper subscriptions. Although expenses do not happen on a monthly basis, they still need to be calculated in your overall cash flow. If you pay for your newspaper only twice a year, you still need to divide the payment by six and at it to your customary monthly expenses.
Other items that are not regular also need to be included in your monthly expenses. Things like clothing, vehicle maintenance and gifts are all important expenditures which must be accounted for. Many people overlook expenses that are not regular, but anything you do on a regular basis affect your cash flow. The best thing to do to estimate these expenses is look over your spending habits for the last several months.
The last category of expenses we will discuss is entertainment expenses. Entertainment is one of lives true pleasures, and some money for entertainment should be included in your budget, no matter how frugal you are. Not including this will lead to a budget that you most likely can not stick to. Most people spend a considerable sum for entertainment, for things like eating out, movies and the ever famous late. While spending $15 a day doesn’t seem like much, not including it in your cash flow with through your calculations off by $450! Depending on your income, this can spell catastrophe.
For an accurate picture of your personal cash flow, you must include all of your expenses in your figures. If you fail to include non-essentials, like entertainment and things that are irregular, like home maintenance, you will not have created a useful picture of your cash flow.
Vincent Polisi is the founder of Finance the Dream and Credit Repair College. Finance the Dream helps people in all 50 states get into lease option homes. Credit Repair College empowers America's to take control of their financial future by learning about free credit repair, thrifty living and budgeting.
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