Investment Basics: Keep It Positive

January 3, 2018

By Colin OShea 
Securities Analyst 

Achieving your financial goals is difficult if you are living from paycheck to paycheck. It’s far easier to plan for the future if you have money to save and invest. When you spend less than you earn, you can control your finances rather than letting your finances control you.

Track What You Spend 

The first step to getting a better handle on your financial situation is to find out if you have a negative or positive cash flow. You can do this by tracking the money you have coming in (income) and the money that goes out (expenditures) for a month or two.

You may want to carry a small notebook with you to record your daily purchases — all of them, even the small ones — or you can keep your receipts. Using a spreadsheet or personal finance software can make tracking your spending easier.

Get Down to Specifics

The next step is to add up how much you spend each month in various categories, such as utilities, food, gas, entertainment, clothing, and so on. Calculate monthly amounts for any semiannual and annual expenses you have, such as insurance and property taxes. Then, use this worksheet to summarize your income and spending.

Look at the Numbers

Now do the math and take a look at your cash flow. If you’re spending less than you earn, you’re doing a good job. You have a positive cash flow. A positive cash flow allows you to plan ahead and put extra money into savings for future financial goals. However, if you are spending everything you earn, you’ll need to make some changes.

Take a look at where your money is going and identify places to cut back. Decide how much you should be spending in each category — those are your target amounts. Once your plan is set, continue to watch and adjust your spending to meet your goals.

Make Adjustments

Try to anticipate how changes in your personal situation will affect your budget and make the necessary adjustments. For instance, if you are planning to add a child to your family or have a child leaving home soon, you’ll need to change certain budget categories. If you have a variable rate mortgage, try to anticipate the impact an increase in interest rates may have on your mortgage payments and budget.

Eliminate Debt

Interest payments on debt can consume a large portion of your income. That’s why it’s so important to focus on paying down any credit card balances you have. While you’re whittling down your debt, avoid impulse buying and use cash rather than credit when you go shopping.

Over time, staying within your budget will help you free up money that you can use to save for your future.

Monthly Cash Flow Worksheet

Food $_________

Rent or mortgage $_________

Credit card payments $_________

Student loan payments $_________

Utilities $_________

Household maintenance $_________

Auto loan $_________

Auto maintenance $_________

Transportation $_________

Clothing $_________

Entertainment $_________

Insurance $_________

Taxes $_________

Savings and investments $_________

Other $_________

          Total Monthly Expenditures $_________

Wages or salary $_________

Interest $_________

Dividends $_________

Other income $_________

          Total Monthly Income $_________

Total Monthly Income $_________

Total Monthly Expenditures -_________

          Monthly Net Cash Flow $_________