A fundamental building block of financial planning is cash management. Effective financial planning requires the accurate examination of cash inflows and outflows and the examination of assets and liabilities. The process of monitoring and examining cash flow allows people to prioritize and address financial goals and monitor progress. 

Cash Inflows: Sources of Funds 

• General income sources, for example, salary, wages, bonuses, commissions, alimony, child support, rents, royalties or trust distributions. 

• Retirement plans, such as a pension and social security income 

• Unemployment compensation, disability payments, other 

• Income from gifts or inheritances. 

Cash Outflows: Fixed and Variable 

• Consider routine living expenses, such as groceries and eating out and automobile expenses. 

• Consider housing expenses, such as rent or mortgage payment, utilities, cleaning, maintenance and repairs. 

• Consider Health Care expenses and Insurance Premiums 

• It is important to include systematic savings, such as IRA Contributions, 401(k) or 403(b) contributions. 

• Other expenses may include, charitable contributions and property taxes 

• Determine the amount you pay in Federal, State and Local Tax and Social Security and Medicare Tax, if applicable. 

Discretionary Income: Amount available to save and invest toward goals 

Once you have compiled your income and expenses; subtract taxes and expenses from total sources of income to find your cash flow surplus or (deficit). 

It is important to create a Balance Sheet along with Cash Flow. List all your assets, such as cash, investments, retirement plans and real estate. List all your liabilities; short-term credit card balances, medium-term automobile loans and long-term loans, such as your home mortgage. Subtract liabilities from assets to know your net worth. The goal here is to build savings and investments and to decrease debt. 

Cash management will assist in your financial decision-making and will help you in the prioritization of goals and objectives and allocating assets. Effective cash management is necessary for the successful achievement of financial goals. A proactive approach to cash management will lead to remarkable success. 

Christine Messmer can be reached at 610.489.7925. For additional information, please visit www.christinemessmer.com.