Whether you are building wealth (accumulating) or enjoying retirement (decumulating), how can you plan a financial journey without knowing where you are?   

Progress is measurable only if you have a starting point. No matter your age or level of wealth, we always start with the basics.  The subsequent financial, investment, and tax planning and strategy in which we engage ideally starts after we understand the fundamentals.  Not to mention, wealth is not income.

Our January Step One is to create a cash flow/income statement for the year.  This is a great exercise to engage in every year. Once you have a template – it is off to the races! 

1. Income statement. Why do we need an income or cash flow statement? If cash flow is positive, it will contribute to building wealth. If cash flow is negative, it will reduce wealth.  

2. If you like creating spreadsheets you can make your own ( I lump all auto expenses into auto, all utilities into utilities, etc. I like to distinguish between clothing purchases vs. general shopping, and a few other expenses that are of interest to me.)  Excel has a number of free templates, too.

There are great digital tools you can use to make this easier. These digital apps will automatically record your cash flow once connected to checking, savings, and credit card accounts. (I was an avid Mint user and switched to Monarch Money after Mint was discontinued last year.)  Other apps include 

• Simplifi (best for smart phones)
• YNAB
• Rocket Money

Once your transactions are posted you can categorize or label them as often as you like. I generally do it 2x a week and at the end of each month I record it in a spreadsheet for the current year. 

Most apps will provide you with the ability to create a monthly and annual report showing total income for the year (what was deposited to your accounts) and your outflows (expenses, transfers to credit cards, savings, etc.). This makes for meaningful conversation with your planner or your partner. 😊😊 

Anyone concerned with building or preserving wealth benefits from this analysis. If you are in your 30’s or 40’s, you can see the progression of wealth building.  

IF Income – expenses = + number 

A positive number could mean funds available for savings (wealth building) or 

paying down debt (also wealth building). 

OR 

IF Income-expenses=– number 

A negative number is not wealth building.  That could be an area on which to focus. 

If you are in your 50’s or 60’s, cash flow provides a good look at lifestyle spending (inclusive of debt) and savings efforts.   If retirement is just a few years down the road, it is a particularly important exercise.  Most of us in retirement pay close attention to our spending. 😉

That’s it!!  We hope this is helpful; if you need assistance getting started, please reach out to us.