Go With The Flow: Give Up Budgeting Forever And Embrace Cash-Flow Management

The traditional wisdom about smart money management is simple: You must create a budget and spend and save within its confines. It sounds so straightforward, right?

Yet budgeting remains a challenge for most people. Many of us, even those who pay their bills on time and have money in the bank, prefer to do it informally. If you’re one of them, please don’t berate yourself for a lack of discipline.

The problem with budgeting is that takes more time and effort than most busy people have. Who has the patience or energy to record every little expenditure, from a quart of milk to a few gallons of gas? Here are a few more reasons you may resist tracking your cash flow:

  • You lack the skills or tools to create a budget and monitor your progress
  • You equate budgeting with self-imposed pressure for more self-discipline and sacrifice
  • You feel discouraged by the level of detail required to track every expenditure
  • You want to simplify your finances, not take on burdensome money-management tasks

The biggest pitfall of reviewing your past expenditures is that you’re looking back at decisions you’re already made. If you realize you’re short on funds at the end of the week or month, you have to comb through your receipts, figure out where your money went and then try to adjust your behavior going forward. That’s nearly impossible!

Instead, I recommend that my clients use a cash flow plan that will guide their financial decisions on a day-to-day basis. First Step Cash ManagementTM employs a three-bucket approach to achieve this day-to-day clarity. Here’s how it works:

  • fixed, regular bills such as the mortgage are paid from one bucket
  • weekly expenses such as gas and groceries are paid from another bucket
  • savings for specific goals such as vacations, college tuition or a new car are stored in a third bucket

Once this cash flow system is set up and tweaked to reflect your priorities and circumstances, the system goes onto autopilot. No more detailed tracking of expenses!

I use this system and am very happy with it. I love to look at the banking app on my iPhone to see my vacation “bucket” filling up!  And I can easily see that my savings is on track to pay for next year’s summer camp for my kids.

If your current system isn’t working, why not give this one a try? You can find more information about it here.