Definition of Cash Flow Budget
A cash flow budget is a set of records of
estimated and actual cash receipts and cash expenditures over a certain
time period. The main idea of establishing a cash flow budget is to
assist us to realize short term and long term goal in our
life planning. An
effective cash flow management will very much depend on how good has
the cash flow budget been developed.
Elements in a Good Budget
A good budget should be flexible.
If something unexpected happen, it should be adjustable or amendable to
make sure we will not be trapped in the crisis.
The contents of the budget must be
simple, so it could be easily understood and implemented without much
problem.
If there are irrelevant details, they
should be deleted immediately. Regular check is necessary to identify
these.
If the direction is not facing the goals
and objectives, proper adjustment is needed.
How to Do a Cash Flow Budgeting?
Steps to develop a cash flow budget
Identify the Family's Annual Income. All sources of income should be listed
and the quantum for each source determined. The source could include salary, bonus,
wages, dividends, rental, interest, dividends, annuity etc. For those
with irregular income, the most practical way is to establish the
amount based on 2 estimates, i.e. worst-case- and reasonable-case
estimates.
Form assessment for both fixed and discretionary
expenses. We may classify annual expenditures as either fixed or
discretionary. However, the term "fixed" applicable only to short term.
All the fixed expenses can be reviewed and changed if they do not bring
inconvenience or drastic change to out lifestyle. Meanwhile,
discretionary expenses, by implication, can be let go from time to
time, so there is enough income.
Determine Surplus (positive) or Deficiency
(negative) of
Income. An individual's net cash flow can be ascertained by
subtracting total expenses from total income. Discretionary expenses
already include listings for savings, investments and an education
fund. If estimated net cash flow
is clearly a surplus, we can earmark even more to these categories. Of
course, it will have to compete with human tendency to prefer spending
the surplus money.
Searching for methods to Increasing
Income or Reducing Expenses. The only route to counter negative cash
flow is to either cut down on our spending or increase the income. We
will probably not like the news, but we have to know and to act
accordingly. It is important our revision of goals of the budget should
adopt a congruous attitude. Short-sighted confidence is detrimental to
achieving the goals set.
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