A personal cash flow analysis measures the money you earn and the money you spend over a period of time. Together, these numbers can help you calculate whether you have a positive or negative net cash flow. A positive net cash flow means that you earned more than you spent and that you have some money left over. Meanwhile, a negative net cash flow shows that you spent more money than you made. 

Your cash inflow, or money you are bringing in, can come from income and sales. More specifically, it can come from:

  • Salaries.
  • Interest from savings accounts.
  • Dividends from investments.
  • Sales from cars or real estate.
  • Sales from stocks and bonds.

Your cash outflow, or expenses, is also calculated as part of your personal cash flow analysis. It can include payments you made toward: 

  • Utility bills.
  • Insurance. 
  • Rent or mortgage.
  • Groceries.
  • Gas.

Knowing your personal cash flow can be crucial to your wealth management plan. Wealth management plans help you outline tangible steps to reach your financial goals. Your financial advisor can analyze your cash flow and use it as an effective wealth management tool.

Why do financial planners employ personal cash flow analyses? 

Cash flow analyses are not just for businesses. Individuals like you can greatly benefit from the knowledge they can provide. The following reasons cause financial planners to use cash flow analysis as part of your personal wealth management plan: 

  • They help you realize how much you can invest. 

    If your financial advisor determines that you have a positive net cash flow, they may also be able to tell if you have enough available money to invest. Pursuing investment opportunities could be a good idea if you would like your leftover money to grow over time. In addition, the results of a cash flow analysis can tell you how much extra cash you have to use for expenses related to travel, education or business.

  • You know where you can cut expenses.Your personal cash flow analysis can be broken down into categories. It can tell you where you are spending most of your money and where you are gaining the most. Knowing these details can help you cut back on unnecessary spending in the near future.
  • You’re warned of potential problems ahead of time. 

    If you or your financial advisor perform a cash flow analysis and you have negative net cash flow, don’t panic. Knowing this ahead of time can motivate you to cut expenses and regenerate your cash inflow. Your financial advisor may also advise you to increase your cash flow by selling assets like stocks or items you no longer need. Make sure that your negative cash flow doesn’t stick around; long-term negative cash flow can indicate a potential bankruptcy.

Talk to a ProVise CFP® professional about your personal cash flow analysis

Do you want to start evaluating results from your personal cash flow analysis? At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about your personal cash flow analysis? Contact ProVise today to schedule a complimentary consultation.