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Your money really matters

Have you ever stopped to think how much money you will make over a working career? You may not realize it, but you will take home a fortune from earned income alone. For example, if you earn $60,000 per year, over the next 20 years you will earn $1.6 million. That’s a tremendous amount of money! Where did it all go?

If you want to achieve your financial goals, you have to manage the major source of your potential wealth—your cash. Effective cash management can help you establish liquidity and build wealth. Below are my five steps to cash management.

Five Steps to Cash Management

Step 1-Gather your financial records for the past three months to determine your monthly net income and expenses. Since income and expenses can vary from month to month, you may have to estimate some cash flow items for all twelve months to come up with a monthly average.

Step 2- Create a “Cash Flow Worksheet.” This will give you a baseline for your monthly cash flow. You can setup your own spreadsheet or use online resources such as:; or purchased software programs like Quicken or Microsoft Money. Subtract your monthly expenses from your income.

Hopefully, you will have a positive cash flow. This could mean one of two things, either you have underestimated your expenses or you have money left over at the end of each month that you can use for savings. If you have a negative cash flow, this means you will fall short at the end of each month and have to come up with extra money.

Step 3-Use your Cash Flow Worksheet and track your actual expenses for several months. At the end of each month, tally up all of your income and expenses, using your pay stubs, checkbook, credit card statements and receipts.

Buy a pocket-sized notebook to keep record of out of pocket cash expenses, such as taxi fares, lunches, haircuts, movies, magazines, etc. It will take about three months to get a good handle on your expenses. Now compare your actual income and expenses with your original estimate and readjust your estimate.

Step 4- Analyze your cash flow statement. Have you maximized your income potential? Would overtime or a second job for a few months allow you to remove the albatross of bad debt from your life? Look at your expenses. Are any of them out of line, such as clothing, entertainment, eating out, transportation, etc? Consider alternative ways to reduce expenses such as: buying clothes during seasonal sale periods, cooking meals at home, or using public transportation. It’s all a matter of choice.

Pay Yourself First

Step 5-Establish a savings goal of between 10 to 20 percent of your gross income. You are probably thinking, “Sure I want to save, but I can barely pay my bills.” The secret is to save first and spend what’s left over. Savings must be the first item in your budget every month. Pay yourself first, because you do all the work. Many families setup automatic saving withdrawals from either their paycheck or checking account. If you don’t see the money, you are less likely to spend it. Some might say that this seems like a lot of work, and it is! But, think of the time as an investment. An investment, that will help lead you and your family down the road to “Financial Success.” If your financial position is not where you want it to be, you have to take control and make it happen!

Michael G. Shinn, CFP, Registered Representative and Advisory Associate of and securities offered through Financial Network Investment Corporation, member SIPC. Visit for more information or to send your comments or questions to © Michael G. Shinn 2008.

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