In simple terms, “cash flow” refers to all forms of cash and assets that come and go from anyone. Companies value cash flow because it offers a clear distinction between what they owe and what they’re earning. It can also be particularly beneficial for individuals, especially when planning a budget.

Individuals and families should create a cash flow plan to ensure that they can properly support their spending needs on a regular basis, while also creating a fund for emergency reserves. One of the biggest risks that individuals without a cash flow plan face is the possibility of going into debt to cover their needs & expenses. A Cash flow plan is a great way to help everyone get a handle on the best way to allocate income between savings and spending.

As you might expect, cash flow planning and budgeting often go hand in hand. Whether you’re a business, an individual, or a family planning out how your cash flow is going to match your spending needs, is in direct correlation with having a budget. Think of a cash flow plan as being focused on your long-term finances, while a budget is much more helpful on a micro or day-to-day scale. Budgets also lend themselves to the formulation of a plan for finding where you can save for the future and retirement.

Budgeting involves being prepared for what lies ahead. On the other hand, spending money recklessly without the guidance of a budget could quickly put you and your family in a bad spot. While cash flow is worth calculating monthly, as in the example of the Jake Family, it is good to be fully aware of your financial limitations more regularly. In the example, the introduction of a major purchase would be unlikely to fit into their current cash flow plan. However, through budgeting and other similar tactics, they could manage to make these goals more attainable.

The ARIES Foundation for FInancial Education, Inc. is a nonprofit dedicated to the mission of trying to help everyone have a better relationship with their money. If you need help, or just want to get started, then reach out to us and we'll see what we can do to get you going info@ariesfoundation.org. You can also visit our website to learn more about we do: www.ariesfoundation.org