Cashflow as Budgeting?

[telephus44]

Reading FB’s post got me thinking about this. I’ve always said that I don’t budget. I don’t set plan my spending to the dollar (or penny) I don’t have elaborate categories and decide to spend X amount on Y category which will leave me a Z amount at the end of the month. However, I do “cashflow.”

Right now (I use Quicken) I have all of my fixed expenditures for June in my checking register. So I know that on June 6th I’ll need to have X amount, and on June 17th I’ll need to have Y. So I basically use predicted cash flow to determine whether or not I have money to spend. I generally work 3-4 weeks out.

I guess what I wondering is – can one use cashflow instead of budgeting? Do people use both? Am I missing something important by only using cashflow?

Usual caveats – I have an EF, have regular recurring transfers to savings/retirement/etc, have no CC debt.

[dancinmama]

Jun 1, 2011 11:42:06 GMT -5 telephus44 said:

Reading FB’s post got me thinking about this. I’ve always said that I don’t budget. I don’t set plan my spending to the dollar (or penny) I don’t have elaborate categories and decide to spend X amount on Y category which will leave me a Z amount at the end of the month. However, I do “cashflow.”

Right now (I use Quicken) I have all of my fixed expenditures for June in my checking register. So I know that on June 6th I’ll need to have X amount, and on June 17th I’ll need to have Y. So I basically use predicted cash flow to determine whether or not I have money to spend. I generally work 3-4 weeks out.

I guess what I wondering is – can one use cashflow instead of budgeting? Do people use both? Am I missing something important by only using cashflow?

Usual caveats – I have an EF, have regular recurring transfers to savings/retirement/etc, have no CC debt.

We "budget" the same way that you do. We always have. It works for us because we are disciplined with money. If you have no CC debt, obviously you are too. Some people need more structure than others.

If I use the expression, "it's not in our budget", it really means that it is not something that I feel is worth the money (I'm a value shopper) or it is a purchase that can be delayed for whatever reason. It never means that we don't have the money.

[shanendoah]

I actually did a blog post about this last night for my personal finance blog.

Personally, I believe cash flow is more important than a budget, in that it keeps you from getting overdrawn, and you know if you can afford X this week or if you have to wait a couple more weeks.

I create a budget because I know that I have debt and I want to decrease that debt by $X this year. So then I look at all my bills and all my income and figure out where I need to cut $X from (food, entertainment, etc) in order to have that money to pay toward debt. I still then need to cash flow everything out so that I know when I'll have the money to send toward that debt.

Budget = big picture, overall money goals
Cash Flow = day to day expenses, making sure you have the money when you need it

[soon2bmomof3]

I use Excel for my cashflow so I can see through to the end of the year and I use Mint.com to budget.

With the spreadsheet I can tweak numbers and see what would happen if I were to put more into savings one month, how it would affect the following months. For the most part, our biggest expenses stay fixed throughout the year (mortgage, daycare, etc) and we get biweekly paychecks, so no surprises.

With Mint.com, it's categorizes everything for me, so I don't have to sort through a month's worth of receipts to figure out how much we spent on dining out or whatever.

[Deleted]

These days I need to have budgetted categories and sinking funds otherwise every purchase stresses me out. I also budget based on last months income so I know EXACTLY what I have to work with on the first, and usually I pay most of my bills that day as well.

When my household income was higher (much higher!) I cashflowed everything.

[Tiny]

If I use the expression, "it's not in our budget", it really means that it is not something that I feel is worth the money (I'm a value shopper) or it is a purchase that can be delayed for whatever reason. It never means that we don't have the money.

I use that term the exact same way!

Budget = big picture, overall money goals
Cash Flow = day to day expenses, making sure you have the money when you need it
I do this. My 'budget' includes various allotments to savings for longer term goals. These come out of my pay as soon as the money hits my account. For the day to day stuff I use my cash 'Allowance' and a Credit Card with a personally determined pre-set spending limit (it's in my head and not anything the card can control). Once my allowance money is gone I'm done spending (this was a rough pay period for me so I've got exactly $1.83 left until Saturday morning when my allowance magically replenishes!). If my Credit Card amount due goes over my personal pre-set limit I know it's time to review what I'm spending on.
I usually look ahead to determine what expenses/money to spend is coming up and adjust accordingly - usually I'll temper my allowance spending or credit card use. I try not to upset the basic 'budget items" like fixed expenses and savings that keep my life running smoothly and with little attention.

[telephus44]

Jun 1, 2011 13:21:35 GMT -5 minnesotapaintlady said:

These days I need to have budgetted categories and sinking funds otherwise every purchase stresses me out. I also budget based on last months income so I know EXACTLY what I have to work with on the first, and usually I pay most of my bills that day as well.

When my household income was higher (much higher!) I cashflowed everything.

I had one job when I was single that paid once a month, and that was the easier to work with - get your paycheck, pay all the bills, whatever's leftover is leftover. Wish more companies would pay that way!

I guess part of the reason this works for us is that we do have a high enough income relative to expenses that I don't have to worry about it. I can cover most "surprises" out of cashflow - $150 for DS's bus pass this month, brakes on the car next month - without dipping into savings.

On occasion, I'll run a report to see how much we spend on gas, or groceries, or eating out - but I've never seen much use in our situation for actually creating budget items. All of our day to day spending goes on the CC, which we pay off in full every month. So I know if I have extra expenses, I need to keep the CC down this month, but it doesn't matter if I keep it down by spending less on groceries, gas, eating out, or whatever else. I have a set "range" for our month CC total.

[❤ mollymouser ❤]

We do much the same thing. My wonderful DH gets paid on the 1st and the 15th, so I always have a plan for how each of those paychecks will be used.... and we always have money in savings for when the need arises (or when the military messes up his pay!)

Since most of our day-to-day purchases go on our rewards credit card (cash back, paid in full every month), we have a reasonable amount of spending flexibility, which I appreciate. I make a payment on that credit card with BOTH paychecks, so that our balance never gets too high, and because it gives me a reason to check our CC balance to see how our monthly spending is going.

[wodehouse]

"can one use cashflow instead of budgeting?"

I did for 14 years or so. Now I use both for past 4 years.


"Do people use both?"

I do now. For my "cash flow" I use my spreadsheet for my checking account register (in lieu of paper register, Quicken, etc). At the beginning of each year I enter the next year's expected transactions including all savings, etc. A graph shows me the cash flow over time. When I used to work without a budget I would just tweak my expected savings transactions so that the graph was essentially "flat" (spiky, but trending horizontal, not up or down).

When things got more complicated with planning for buying houses out of state, other situations, I found it simpler to create and work with a one page budget. I liked the budget and began to use it in my regular planning.

So now at the end of each year I set up my budget for the next year, determine all expected costs, tax issues, etc. Then I transfer these to my Excel spreadsheet again so that there is a year's worth of transactions listed out and I have my graph. Then throughout the year I still work only with my cash flow.


"Am I missing something important by only using cashflow?"

Probably not. Just be certain to account for all your expenses, even the irregular ones like insurance bills, and account for contingency costs...I save up for home repairs, car repair, etc.

[garion2003]

I do a modified version - I basically have my "fixed" expenses that I know won't vary or will vary very little (rent, electric, cell phone, cable, car insurance, haircut, car payment, Roth IRA contribution (go me!), etc.

So what's left I either have control over, or can play with.

Out of that comes food, meals out, gas, savings, misc/fun, and overhead/reserve. I just have these 6 categorie with a "budgeted amount" for each based on past spending. I do track these so I know where my money is going.

At the end of the month if I haven't spent much in one area: say gas, I will either cover another area that went over (e.g. meals out) or put it into savings depending on the needs that month.

[Gardening Grandma]

Well, color me confused...
I THOUGHT I was budgeting. It appears that I'm doing what garion does...

I have a spreadsheet with about 20 categories. Each category has a budgeted amount, an actual amount and the difference. I also track the previous month's spending as well as the average.

At the end of the month, I'm over some areas and under in others. I don't worry about it unless it appears to be a trend. (gas, for example). Then I re-evaluate the budgeted amount.

The bottom line is that at the end of the month, I usually have a small amount left over. That goes towards paying off the popup trailer. Or I might be short a small amount. That comes out of the extra payment to the popup trailer.

On the first, our pensions and IRA withdraws show up in the checking account. I subtract all of the fixed expenses and typically have about $1500 that has to cover food, gas and all discretionary spending for 3 weeks (until the 4th Wed of the month when our SS gets deposited). When that happens, I subtract the same amount each month that gets set aside for the expenses that don't get paid every month as well as the unexpected ones. I call it our "reserve fund".... That leaves about $500 to cover food, gas and discretionary spending for the last week of the month.

It's not as complicated as it may sound and it works for us, but what am I doing? Budgeting? Cash flow? Or a modified/combined version?

[kimber45]

I guess I'm in the cash flow crowd. I do have a calendar with notes as to when quarterly, semi-annual and annual expenses are due so I know when those biggies (RE taxes, car insurance, sales tax, house ins, etc) need to be paid and how much I need to keep on reserve for them.

The monthly expenses (elect, dtv, phone, etc) I pay as they come in the mail. Sometimes I have a lot left over, sometimes not so much.

[shanendoah]

Note: These are my definitions and other people may disagree

Budget: If you have a set amount of $ you allocate to categories each month, that is your budget. Sometimes you're under budget, sometimes you're over budget. You can then move money around, but simply by having categories with a set amount you expect to spend, that's budgeting.

Cash Flow: When you write down all your upcoming incoming and outgoing cash for the next X amount of time (I do 1-2 months, other people to a year or a week) so that you can see how much money you will have in the account at any given time. This can help you schedule when its a good time to make an extra payment, or let you know that you need to be extra careful about your spending the week between rent being due and your next paycheck. Cash flow doesn't have any categories. Its just all the money coming in and going out.

Again- Budget is an overall big picture that helps you meet your money goals. Cash flow is the day to day tracking of cash in your account that helps you keep from being overdrawn.

[gobermitcheese]

I guess I use a hybrid method. Every two weeks when I get paid I allocate the money to various categories gas, food, car, student loans, clothes ect. That money is not necessarily spent in the budgeted time period (two weeks) but I set the money aside for the weeks when I have higher expences like last week when I had to replace my car tires.

[Clifford]

I used to keep a spreadsheet (for a few years) but gave it up. Now I get my monthly check (after 401K and HSA contributions) split to 2 accounts. One is the savings account (which when it gets to a certain level we contribute to Roth's), the other is checking. As long as we don't spend more each month from checking than we put in, it's all good. I can tell this by the end of month balance.

[wodehouse]

As I described, I use an annual budget to set up the details of my cash flow for each month of the year. But because I have monthly accounts that accrue for costs that occur non-monthly I really don't care if my monthly expenses are greater than or less than my monthly income. Theoretically, they should be exactly the same. Of course, utility bills vary from the budgeted amounts, etc, so there is some monthly variation. But in my system any disparity between monthly income and monthly expenses does doesn't even come into the headlights. I just don't understand the concern for this unless one is really running "close to the bone".

So in the end I'm really just concerned or interested in the cash flow, making certain that the checking balance doesn't drop below a certain value at any point in time.

[dividend]

I've never done cash flows in the sense of itemizing money in and out.

I do both of these things :

But because I have monthly accounts that accrue for costs that occur non-monthly I really don't care if my monthly expenses are greater than or less than my monthly income.

Every two weeks when I get paid I allocate the money to various categories gas, food, car, student loans, clothes ect. That money is not necessarily spent in the budgeted time period (two weeks) but I set the money aside for the weeks when I have higher expenses like last week when I had to replace my car tires.

The per paycheck allocations make sure that money is being saved incrementally for car stuff, annual bills, and vacations, and also that I have day-to-day operating money for groceries, gas, the cell phone bill, my allowance of fun money, etc. I allocate for the next half month, keep $1k of my EF in my checking account as a buffer, and run everything I can through my CCs (paid in full). I have one single spreadsheet that serves as a transaction register and budget tool.

About the only thing I really cash-flow is my vacation money, to see whether I can commit to trips later on in the year.

I need to get better about saying this :

If I use the expression, "it's not in our budget", it really means that it is not something that I feel is worth the money (I'm a value shopper) or it is a purchase that can be delayed for whatever reason. It never means that we don't have the money.

Especially to my Mom. She's reached a point where she's ok to indulge herself, and she knows I make a high income and my rough net worth, so she talks me into spending money on myself with the "You deserve it" talk.

[garion2003]

I should have said that I get paid once a month, on the last day. So my paycheck is to cover expenses for that monthly (as budgeted) with any surplus or deficit accounted for like gardening grandma does. I might do it differently if I was paid differently. I've been monthly now for 10 years so I'm used to it.

[whoisjohngalt]

I do an annual, zero-balance budget. I look at out monthly cash flow to make sure we are not overdrawing our acct. I couldn't "budget" by paycheck and I couldn't even do it monthly, it would be way too much work for me.

To answer OP - "you" can use whatever "you" want. I am a firm believer in structuring your personal finances whichever way makes most sense to the person, obviously as long as the goals are met, yada yada yada.

Lena

[Deleted]

I think I do what you do, but I do call it a budget.

On the 1st of the month (I get paid monthly), I lay out all my expenses for the month. I allow $350 for utilities, $100 for gas, and the rest are basically fixed. I enter them all into my check registry at that time. For utilities and gas, I subtract what I actually spend; if there is anything left over, that just goes back into the checkbook eventually.

The rest is money for whatever. I take out $350 a month from my paycheck for what I call "estimated monthly expenses." This covers new tires, termite inspection, renewal of the paper, etc. I try to pay it out of regular checking first, but that's there if expenses run higher.

We also have a $500 deposit a month to a house account. That's for maintenance. It came about because I remarried a couple of years ago and had a house that I could already afford by myself. We keep separate accounts, but he needed to pay "something" for living here. We don't nickel and dime it, but it covers lawn maintenance and bigger stuff like house painting, etc. That way, I don't have to ask him for "half" on a house that will still be mine if for some reason we ended up divorced.

He's never budgeted in his life so it would be horrible if we tried to join $$$. I posted on another thread that he spent $150+ on sushi while I tried to save by buying frozen pizza. That's fine with separate finances. It wouldn't work with shared finances. But part of the difference is that I'm working (so saving for retirement) and he's not.

ETA: The check registry is online (Money).