343. The Cash Flow Plan, Budget’s Partner in Crime

Subscribe to Simplify My Money:
https://www.debtfreedad.com/newsletters/simplify-my-money  

In this episode of the Debt-Free Dad podcast, host Chris Hawkins discusses the common challenges of starting and maintaining a budget. Chris introduces the concept of a cash flow plan as a companion tool to budgeting that can significantly improve financial management. By breaking down monthly expenses by paycheck and planning ahead, listeners can gain better control over their finances, reduce debt, and ultimately achieve financial freedom. Chris shares practical steps and personal anecdotes to guide beginners and experienced budgeters alike through the process of effective cash flow planning. Join us to learn how to take control of your money and plan for a more secure financial future. 

Chapters

• 0:00 Why We Hate Budgeting
• 1:51 The Budget's Essential Partner
• 3:23 Creating a Cash Flow Plan
• 7:40 Evolving to a Rolling Plan
• 12:00 From Budget Stress to Financial Freedom
• 14:36 Episode Closing and Newsletter Offer

Transcript

Chris Hawkins: 0:00

One of the most dreaded words in the English language is the B word. That's right. We all hate talking about doing a budget. A budget doesn't work. A budget means that I can't do what I want to do. We come up with all kinds of excuses to not do a budget and then, when we try to do a budget, it seems to be the most complicated thing in the world. In fact, it seems to be. How do I do a budget, or how do I start doing a budget seems to be the top question that I've ever been asked as a financial coach, and I see it on a lot of the Facebook forums how do I start a budget? How do I get going with a budget? And then, of course, once people start budgeting, they talk about how it doesn't work or how they leave things out and how frustrating it is, and we've talked about on this podcast how there's no right way to do a budget. The only wrong way to do a budget is to not do one. And then it takes you several months, sometimes up to six months, to really begin to get the hang of it.

Chris Hawkins: 1:16

Well, today I want to talk about the partnering crime for lack of a better term of the budget, another tool that doesn't get talked about near as often that if you will do in conjunction with your budget, it just might help you improve your budgeting skills, help you plan your money and where it goes, and help you win a lot more often with your finances. So let's talk about the partner in crime of the budget in today's podcast episode. This is the Debt-Free Dad podcast, where we help normal, everyday people like you take control of your finances so you can live a happier, less stressful life. So you can live a happier, less stressful life. My name is Chris Hawkins and I will be your host for today's episode, and from 2005 to 2008, my wife and I we paid off just under $100,000 in debt and we've been debt-free except for our house now for over 15 years. So before I tell you about the partner in crime, so to speak, the kissing cousin of the budget, let's just real quickly recap what a budget is so theoretically.

Chris Hawkins: 2:37

A budget is where you plan out all of the income that you're going to earn or receive from all the variety of different sources that you might get income, and you're going to write that down or do it in a spreadsheet or an app. Again, there's no wrong way to do it, as long as you do it. And then you're going to list out all of your expenses for the month. So typically a budget's done per month, and the reason is because your mortgage payment once a month, your electric bill once a month, you have other expenses, maybe a car payment, credit card payments they're all done once a month, and so a budget is designed to be a monthly tool to help you make sure that you pay your bills and then accomplish whatever other goals that you want to do.

Chris Hawkins: 3:23

Now I don't want to get too technical here and I want to keep this fairly brief, but when I first started budgeting, I had an envelope a manila envelope folder, I guess, is a better term for it and as I got bills, I would put them in the folder. And then I had a yellow piece of paper just an old, you know legal pad and I would write down the name of the bill, the amount and when it was due, and then, of course, I would do a budget, and I also used a yellow piece of paper to do my budget, and so at the top there was our monthly income, and then I listed out all the expenses as I went through the budget and, of course, if I got to the bottom and there was any money left over, I went back and applied what was left over to the next debt on our debt snowball, such that every dollar of income equaled the amount of expenses. So, for example, let's say I had $5,000 worth of income for the month between my wife and I, we would show $5,000 worth of income and then $5,000 worth of expenses, such that income minus expenses is zero. That's a zero-based budget and I recommend that you do that. Well then, the trick was I've got this piece of paper with all of my bills listed by when they're due and all the income doesn't come in at the same time every month. All the income doesn't come in at the same time every month. All the income doesn't come in at the same time every month. So my wife she was getting paid every two weeks and I got paid twice a month. So, for example, just to pick some random dates, let's say my wife got paid on the 13th and I got paid on the 15th. Well, two weeks later, she gets paid on the 27th, and then I get paid on the 30th or the 31st, or if it happened to be February 28th, because I got paid in the middle and the last of the month and so not all the money hit the checking account income wise at the same time.

Chris Hawkins: 5:22

And so then the question bagged okay, I've got a budget. This is my list of all my monthly income and all my monthly expenses, but it doesn't all come in at the same time. So I found myself taking another piece of yellow legal paper, and on the left in this example, I would write down the 13th and the 15th, and I would write down my name and how much my income was, my wife Helen and how much her income was, and add that together to come up with how much money are we going to get combined in the 13th and the 15th. And then, on the right side of the pad, I would write down the 27th and 30th and then for me how much income I was going to get on the 30th and how much my wife was going to get on the 27th, and add that together. Now, theoretically, those two totals should equal the total income in the budget. I hope this is making sense.

Chris Hawkins: 6:19

And then what I would do is I would look at my list of bills that were due and I would start plugging them in. So, for example, if I had a bill that was due on the 20th, I knew that I had to pay that out of the income that came on the 13th and the 15th. Now if I had a bill that was due on the second of the next month, I knew that I had to pay that out of the 27th and the 30th. So I would then go down all of my expenses and, on the left side of the paper, everything that was due on or after the 13th and the 15th again, this is an example and then on the right side, everything that was due after the 27th and the 30th. So in essence, I took my budget and split it in half and had to make a determination which bills am I going to pay out of the 13th and the 15th? Which bills am I going to pay out of the 27th and 30th? And, by the way, I'd have to do this the next month. So if we go 14 days from the 27th, that would put it at the 11th and the 15th the next month, and the 25th and the 31st on the right side of the paper.

Chris Hawkins: 7:28

So every month I found myself having to split the budget into half, not necessarily the mortgage in half, but meaning half the income on the left, half the income on the right. What bills am I going to pay out of those two payche the right? What bills am I going to pay out of those two paychecks? What two bills am I going to pay out of the next two paychecks? And that is what is called a cash flow plan, where you take your budget and you split it up and you get more detailed. You decide okay, which bills am I going to pay when and out of what paychecks, to make sure that they get paid on time and to make sure that you stick to your budget. Now there were some things like food that I would split in half, and half of it would go on these two paychecks and the other half would go on the other two paychecks. But then something like the mortgage that had to get written, in this example, on the 27th and the 30th, because that was due on the first of the next month, and so it helped me just kind of get more fine, detailed in terms of how I was going to break the budget down.

Chris Hawkins: 8:44

I found myself in a unique situation where, because my wife got paid every two weeks, twice a year. She ended up with three paychecks per month and I still had two, and so there would be two months out of the year where we would have five paychecks, not four. So I found myself okay, having to write my paycheck and her paycheck on the left, her extra paycheck in the middle of that yellow pad and then our other two combined paychecks on the right. So in those two months I had to take my budget and break it down into three columns so that I could be more detailed in terms of what was going to get paid with each paycheck. I hope this is making sense. So eventually I thought well, why stop at two paychecks and two paychecks If I find myself every month having to redo this form? Why can't I every two weeks? I still have my monthly budget, but redo this cash flow plan. So let's go back to my initial example 13th and 15th on the left, 13th, 27th and 30th on the right. Once the 27th and 30th came, I would redo that cash flow plan. The 27th and 30th would be rewritten on the left side of a new piece of paper and the 11th and 15th would be written on the right side. And so I found myself breaking my monthly budget down every two weeks, because that's how my wife got paid was every two weeks, and so I began to do a rolling cashflow plan, which helped me even better start to project for the next paycheck.

Chris Hawkins: 10:35

Maybe I might fall short for some reason. So I've got to carry money over from these two paychecks to the next two to make sure that I have enough money and then eventually got to where. Well, okay, now, if I've got three paychecks every now and then I've got three columns, why can't I do a month and a half at a time? Then, eventually, why can't I do two months at a time? And so the more experience that I've got at this I now do a rolling one year cash flow plan, meaning as soon as I get a new paycheck, and of course, I do all this in a spreadsheet now makes it a lot easier. But every time we get a new paycheck, I add another paycheck at the very end, a year from now. So why is this important? If you pay your insurance every six months, you can go through and plug in when those payments are going to be due, so you don't forget about them and to help you make sure you've got enough money. So maybe you've got to set some money aside in savings so when those bills become due, we call that a sinking fund. You've got money in your sinking fund to pay the insurance car insurance when it's due.

Chris Hawkins: 11:47

Now I'm not out there suggesting right now that all of you immediately start doing a year-long cash flow plan. But what I am suggesting is start with a budget, do it for a few months and then eventually start doing a cash flow plan, breaking your monthly budget down into paychecks. And again, just because I did it a certain way doesn't mean you have to do your cash flow plan. That way I could have just as easily had a column for my wife's paycheck on the 13th, another one for my paycheck on the 15th, another one for my wife's paycheck on the 27th and another column for my paycheck on the 30th. You don't have to necessarily group, it just made it easier for me to not have too many columns on a piece of paper.

Chris Hawkins: 12:30

But do your budgeting for a few months At least. Kind of get the hang of it. Then start slowly working in a cash flow plan. How am I going to break down all of my income to make sure that I have enough money to pay each bill when it's due and then slowly see if you can't work yourself out a month into the future and do two months at a time and then three months and as you get new paychecks, redo it. That'll help you to start budgeting for the future. And so think of a cash flow plan as this Not all the money comes into your checking account at the same time and not all of it leaves at the same time, so this is a projection of when money is going to come in and when money is going to leave, so that you make sure you have the money when you need it to pay the bill or you make sure that you have enough money to fund your food envelope or your gas envelope.

Chris Hawkins: 13:28

I hope this is making sense to you.

Chris Hawkins: 13:31

So budget once you do it for a few months, start breaking that budget down per paycheck that's a cash flow plan and then eventually work to where you're doing it a month, two months, three months and by the time you've done this for several years and you really have your system down, then maybe you can work up to a year at a time.

Chris Hawkins: 13:52

The more you are in control of your money, the more you tell it what to do, the more you're going to have of it, the more control you're going to have of it, the more control you're going to have in terms of telling it what to do and the more you're going to not let your money tell you what to do, but rather you're going to be content with knowing that eventually I've paid off all of my debts. And now what do I do with all this extra money that I have every month? And you can start to do some really cool things, and cash flow planning becomes even more important the more you do it. So cash flow plan is the kissing cousin or the partner in crime of the budget. Give it a try. I think you're gonna see that it works.

Brad Nelson: 14:35

Now listen if you're ready to break free from living paycheck to paycheck which, if you're listening, I hope you are. You wanna reduce financial stress. You wanna build. You want to finally pay off debt for good, but you're not sure where to get started. Don't worry, we've got you covered here at Debt Free Dad. Simplify my Money is sent each Sunday to your email. We make it easy and Simplify my Money. It's your step-by-step roadmap to better financial control, and you're also going to learn easy to follow strategies to manage your money effectively. You're going to get stress-free money decisions that will help you simplify your financial life with proven tips that actually work. You're also going to gain the tools and the confidence to tackle your financial goals head on. You can sign up for Simplify my Money by clicking the link at the top of the show notes. Thanks for joining us on today's show and we will see you guys on the next episode.