The practice of calculating your personal cash flow is becoming more common. While it is a fairly straightforward process, many people still have difficulty determining what they should count and what they shouldn’t. The concept of cash flow analysis is primarily related to business. As far back as the 1970s, the concept of cash flow statements has been an integral element of U.S. Both lenders and investors use corporate cash flow statements to determine a company’s financial health. This is part of Generally Accepted Accounting Practices that have been a part of the business world for decades.
Using cash flow analysis as part of personal budgeting has been a common practice of high net worth individuals for some time. However, recently, it has become more common for people of all income levels. Despite the fact that more people are using cash flow analysis, there are many more people who never go to the trouble. This is unfortunate, because using this analysis can help you get a better look at your current situation and help guide you towards your goals.
Now that the idea of cash flow analysis for individuals has become popular, you can find many resources to help you figure out how to properly calculate your cash flow position. A simple Google search for “personal cash flow” brings up more than 26,000 hits, most of which provide free resources available to anyone online. However, there are things to keep an eye out for.
When searching online, you need to be careful that the information you are looking at deals with personal cash flow and not corporate. The process of calculating corporate cash flow is much more complicated, and reviewing it can be confusing. It also does not take into consideration factors that must be considered by individuals to get an accurate number. Something else to look out for when you are looking for help with cash flow analysis, is to make sure that you are not reading about projected cash flow assessments. This is where you look at what you expect to make over a period, versus what you expect to spend to determine your course of action. This is a common business practice, but it is not very useful for individuals.
If you are familiar with the business world, you know that budget projections are constantly being revised, and even the most complex projection done by an expert can be hit or miss. While this works for businesses trying to attract investors, it is not a good practice for individuals. This is why projected cash flow is not a very useful personal tool. For the individual, proper use of cash flow tools helps you determine where you at presently, and what you should do in the future. Guessing where you’ll be in the future, and determining your current actions based on these guesses, is not a good idea.
Personal cash flow analysis is a very helpful tool to help people determine where they are at, and to help them make the right decisions to get where they want to be. As such, anyone interested in their financial position should take the time to carefully calculate their current cash flow position and their inflow to outflow ratio. However, it is important to do this correctly and ensure that the data you consider is accurate, as choosing a future course of action on the basis of an incorrect assessment can lead to disaster.