Cashflow StatementCreating and reviewing a Cashflow Statement for your household regularly is critical to developing strong financial defense. A Cashflow Statement tracks how money flows through your life. It lists all your income and all your expenses over a given period of time, typically a month. All businesses have to develop such accounting statements because that is the only way to know if you are making money. It is no different for our households. The Missing MillionsMedian household income in the US is $40,000. Given that the typical adult works about 40 years, that means that this median household sees over $1.5 million flow through their hands in their working life! Money is life energy and it behooves us to become aware of how our life energy in the form of money gets spent.The Millionaire Next DoorThe Millionaire Next Door Your Money or Your LifeMy favorite money management book is Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence . They recommend the following exercise to sharpen your money awareness:This practice is simple: Keep track of every cent that comes into or goes out of your life.To recap: Track EVERY SINGLE penny you spend. It does not matter how you do it. You might carry a notebook with you wherever you go and note down every monetary transaction. You could use your iPhone to record your expenditures. What matters is that you do it. As you build up a record of your spending this way, you will start seeing the patterns of your spending. You will become more aware of how money flows through your life. It might feel like it slips through your fingers in the beginning! For me it is buying coffee at bookstore cafes. I go to the bookstore, get a stack of books to browse, walk over to the cafe and get myself a cup. I cannot help myself! It is almost an unconscious act of spending. Luckily for me it does not happen too frequently and I am willing to let it slide. (It also alleviates the little guilt I feel over not buying a book there!) This is exactly why it is necessary to track your spending - to get to the truth of your spending habits. Use Plastic Everywhere PossibleMy wife and I came to the realization that tracking cash expenditures is not easy! We tend to forget about them very quickly. So what we decided that we would use a credit-card every time possible. This way we do not lose track of where our money went. To be fair we still have some "leakage" in the system. We do use some cash and usually forget to record where it got spent. But we keep minimizing this leakage.Automate ItIt is very useful to review your Cashflow Statement on a regular basis. Both Balance Sheet and Cashflow Statement should be reviewed every quarter at least. This is how you build a strong financial defense, a critical step towards financial freedom.Return from Cashflow Statement to Financial Defense Return to the Home Page
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is the definitive study of the money habits of your "average" millionaire in America. A key habit of these financial superstars is exceptional financial defense. Tracking their spending is one financial habit that is consistent among these people. Indeed, strong financial defense builds on tracking your cashflow regularly.
