Cash seems so slippery these days. Didn’t you just put a $20 bill in your wallet yesterday – and now it’s gone? Well, that’s not a new phenomenon. The Bible says money takes wings like an eagle and flies away! (Proverbs 23:5)
Everyone is – or should be – concerned about controlling cash flow. It’s one thing to have a budget and make a financial plan. It’s quite another to control the flow of money in order to accomplish your plan. The only way to accomplish your long-term goals is to generate a cash flow margin – and that only comes through spending less than you earn.
Although it’s difficult to control cash flow, it’s not impossible. The process can be broken down to a few essential items.
The objectives of establishing and maintaining a cash control system are:
To allocate funds to meet expenses at predetermined levels.
To know your available cash at all times relative to the predetermined level of spending.
To meet these objectives, the control system you establish should have the same effect as an “envelope system”. As a matter of fact, the use of envelopes is not a bad way to implement a cash flow system until the habit is formed. Even though you may be giving up some interest earnings on your cash by having it sit around in envelopes, the lost interest cost is far less than the overspending that would occur without the controls.
If you put $100 into an envelope for food, then a level of spending has been established. As money is spent from the envelope, the cash balance relative to the established level of $100 is determined simply by looking into the envelope to see how much is there.
In today’s environment, however, it’s often inconvenient or unwise to keep envelopes with cash lying around the house. Therefore, your budget system should be adapted to work with a checking and savings account. A sheet of paper could be used as long as it has columns for showing dates, purposes, deposits, withdrawals and balances, just as a checkbook ledger does. Each checkbook ledger has the same effect as an envelope in the budget system. You can also opt for an electronic version of the “envelope system.” My personal favorite is “Mvelopes” offered by Crown Financial Ministries at www.Crown.Mvelopes.com.
Before you set out to implement a cash flow control system, you must be committed to exercise discipline and not to spend beyond your designated amounts. The following principles should then be incorporated into your cash system:
1. Always measure actual spending against planned spending. The key is to know as soon as possible when budget limits have been reached.
2. Exercise discipline. Is a budget extra work? You bet it is. However, the benefits are more than worth the effort. Even so, once the budget is established, it should not require more than 20-30 minutes over an entire week. Eventually, it will require only 20-30 minutes per month.
3. Do not use credit cards, except as a “check” (a debit card). Nothing will destroy a budget faster than having to meet unexpected debt payments. Debit card use requires a timely accounting within the budget.
4. Be flexible. At times it may be necessary to use funds allocated for one purpose for some other purpose. This is allowable but will require a specific decision each time a transfer is made. For example, one may decide to give up Culture money to buy clothes. The budget will allow this to be done in a visible manner.
These principles will enable you to get a handle on your cash flow. And unless you accomplish that, you may never see your financial plan come to fruition.
Remember, setting up a cash flow system requires discipline and the commitment not to spend beyond designated amounts. Yes, it requires additional work to maintain your budget, but the benefits far outweigh the few extra minutes necessary each week. With a clear spending plan and control system, you can have control of your money to enable you to progress in your overall financial plan. It’s all part of being a good steward of what God has entrusted to you.
Rob West is the Training and Communications Director for Kingdom Advisors, a non-profit Life that exists to equip and disciple Christian financial advisors to integrate their faith and profession. Please send questions and comments to [email protected].
The information in this article is for information purposes only and does not constitute advice. You should not rely on any information in this article to make (or refrain from making) any decision or take (or refrain from taking) any action.