Can a Cash Flow Statement make you become wealthier? Yes it can. The first step for effective management is good self-awareness. How can you manage what you don’t know?

When it comes to your personal finances, in the short term, little matters as much as the Cash Flow Statement, which determines your Cash Position.

The Cash Flow Statement is an essential step in obtaining the savings goals (outlined here) essential for financial freedom.

How can you tell what to invest, how much to invest, and when to invest, when you don’t know how much money you can expect to have available?

Cash Flow Statements locate exactly what you have available to work with when making any decisions that have to do with money.

Ultimately, a cash flow statement gives you freedom.


So, what is a Cash Flow Statement?

Boiled down, a Cash Flow Statement is a record of all incomes and expenses within a certain period.

What makes this different from a Balance Sheet or an Income Statement is that it is designed to measure how much liquid capital (cash) you have available at any given moment as opposed to measuring all of your assets and liabilities.

The Cash Flow Statement starts with your current available balance (positive or negative) at the beginning of each period and then adds all of your incomes and deducts all of your expenses.

This leaves you with a new balance at the beginning of the next period.

I would recommend segmenting your Cash Flow Statement into months so that you can easily account for expenses that accrue on a monthly basis. Typically, pay periods also fit nicely into this timeline.

If you would like to break it down to a weekly basis, or even daily basis, more power to you.

Budget vs. Cash Flow Statement

If you have already created a Budget for yourself, then building a Cash Flow Statement will be a breeze.

Although many of the same principles are at play here, I think that it is imperative to prepare both a Budget and a Cash Flow Statement in order to have a good handle on your finances.

Much of the same information can be gleaned from both, but a Budget is typically prepared before each period in order to help allocate your spending and savings.

Having a Budget will help you make educated spending decisions. At the very least, it will encourage you to set personal goals each month.

A Cash Flow Statement tells you how much money you have left over to allocate to different purposes. You can input items before you commit to them in order to test their feasibility.

If you are thinking about purchasing a new gym membership, you can input the monthly fee to forecast a new cash position. If it puts you into a negative position, or dangerously close to one, you may want to reconsider its value to you, or reconsider another expense.

By the way, you can download our free Cash Flow Calculator by clicking this sentence (Don’t worry, it won’t take you off the page).

 Position Yourself

Each of these two tools provide information about how you are spending your money. Use this as a springboard to establish and get closer to your spending goals.

Ideally, a cash flow should be in a near-net neutral position, assuming that it accounts for savings and investments (as it must).

Idle money that just sits in your checking account is money that could be used for a better purpose.

I won’t get into investment advice here, but most of your cash should be allocated to a purpose, and all of your cash should be accounted for.

If it is not going towards a direct expense, then it should be moved into a savings account for safe keeping at the very least.

A small petty cash fund is always useful, but it should be included in the cash flow (I have designated a space for it in the Free Template).

Be wary though, that your petty cash fund does not grow to an unreasonable size. It is easy to use this as an excuse to spend more on small things that add up quickly.

Because the petty cash fund is non-specific, there is plenty of room for you to abuse it, or cheat on your goals. Good discipline is the only thing that will protect against this. Put a limit on this fund (in the Budget) before you begin!


In order to keep a tight grip on your personal (or business’) financial situation, a Cash Flow Statement is essential.

Create a Budget in advance to each month, and then keep all of your receipts and make sure to account for each expense in a Cash Flow Statement.

After the month ends, compare what you budgeted to what you actually spent. You will be amazed how much you spent at that boutique coffee shop you love!

Don’t kick yourself for overspending. Money has a way of escaping from all of us. After all, that’s what money is for! Make adjustments and cut back where you can. The next month should be a little more on target.

Keep doing this until you reach the essential saving habits for financial freedom outlined here. Don’t worry, you’re well on your way.

You can fast track your progress by downloading our Free Cash Flow Calculator right here. Also be sure to leave us a comment if you’d like to continue the conversation.