How I Manage My Cash Flow
This post is part of the “How I…” series, where I describe how I manage a certain part of my own personal finances. My approach won’t work for everyone, but I hope it’s helpful as you try to find the best ways to manage your family’s money.
The setup
One of the most important parts of managing your family’s money is making sure you have enough money in your accounts to pay your bills on time. To do this, you have to know how much money you currently have in each account, when money will be withdrawn and deposited to the account and when these will happen, and what your plan is for handling any mistakes. Today I’m going to talk about how I handle these things.
For a video demo of my process, see Part 2 here.
One “bills” account
My wife and I have a single checking account from which all of our bills are paid. This is also where my paycheck is direct-deposited twice per month. Having a single account makes things much easier for me because I only have one location to keep track of.
I have a system that I describe below that should at all times keep enough money in this account for all near-term bills, but we also have two safeguards in place to handle any mistakes.
First, we initially funded this account with two months’ worth of typical expenses. Half of that money was put there to handle the coming month’s bills. The other half was to give ourselves a cushion in case something unexpected happened and we needed a little extra there. That’s our first line of defense.
Our second line of defense is a savings account linked to our checking account as overdraft protection. We keep just over $1,000 here and consider this to be part of our emergency fund. But it’s also there in the unlikely case that our checking account accidentally gets overdrawn. In that case, the money would automatically be taken from the savings account without any negative consequences.
Tracking our cash flow
To track our cash flow and make sure that none of the above precautions become necessary, I use a simple Google Spreadsheet that I made up. You can find a link to the template here with some example data already populated. You can feel free to edit this basic template for your own use if you find it helpful, but at the very least it will be helpful to look at as I describe my process.
Please keep in mind that the data in the template spreadsheet is purely for the purpose of providing an example. It is somewhat simplified and does not reflect actual transactions within my account.
In the “Checking Cash Flow” tab, I have a running list, sorted by date, of the deposits and withdrawals I expect to happen in my bills account. The “Change” column indicates the amount of the transaction, with withdrawals entered as negative numbers. The “Balance” column automatically updates based on the change entered on the row. I put an “x” in the “Scheduled” column when the transaction has actually been scheduled (this is blank for any transactions where I don’t know the exact amount because the bill hasn’t come due yet).
Once per week, I open this up for review. I compare it to the transactions in my checking account, which I’ve also opened up online. I put an “x” in the “Done” column for any transactions that have occurred since I last reviewed things. If anything needs to be added, such as a cash withdrawal I hadn’t pre-planned for, then I add that row at the bottom and re-sort the sheet by date. When I’m done, I copy the cell currently populated in the “Actual” column and paste it on the lowest row that’s been marked “Done”. I then compare the amount in that “Actual” column to my actual checking account balance. If they are not exactly the same, I re-check my spreadsheet against my checking account to see where the difference lies.
When one month is completely “Done”, I cut those cells from the main sheet and paste them into the “Archived Checking Cash Flow” worksheet. With a simple cut and paste, the formulas will all still work and the running “Balance” column will still work correctly.
Why this is helpful
The main thing this helps me do is make sure that we always have enough money in our account to pay our current bills. There are certain months where we have some big expenses (e.g. travel purchases), and I want to make sure that we never overdraw the account. Since we use credit cards for almost all our purchases, and pay our balance in full every single month, we have some time to plan and move money out of our sinking fund accounts if necessary.
The second thing it does is help me make sure that we’re managing our saving and spending properly. If we’re doing everything well, the balance in our checking account should be roughly the same at the end of each month. Every dollar coming in should either be going towards our bills or should be put in savings somewhere. Keeping this spreadsheet helps me determine when something here is off so I can figure out what we need to change.
The last thing is that it serves as a check on our checking account transactions. It’s helpful to know that what’s actually happening in our checking account lines up with what we expected to happen. Any differences are usually easily explained, but it’s something that I want to stay on top of.
