Why It’s Crucial to Understand Your Household’s Cashflow

Shannon and Dave discuss why budgeting isn’t the answer — but cashflow clarity is. Before you can save and invest, you need to know how much money is coming in and how much money is going out.

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I don’t like budgets I hate them. It’s like the word diet. I hate it. It feels restrictive. And most people, uh, unless they’re engineers or Virgos, don’t love to chronicle every single thing that they’re spending money on every single day unless it’s for a specific reason. Um, but what you do is we do take a snapshot of cashflow because at the end of the day, this is ultimately what it comes down to because you can know everything there is about investing, but if you don’t have cash flow at the end of the day, this is moot.

So we take a hard look at what’s coming in. You would fill it out for us based on your own, like we have a spreadsheet that you would fill out. And we really break things into like what are your fixed expenses, the things you have to pay, whether you like it or not. And I’m not talking about groceries because groceries are optional in the sense of like, you could spend a hundred dollars or $150, right?

I’m talking about mortgage, rent, insurance, car payment, those things. Then we really get people to think long and hard about what those big sort of spikes in spending are, and this is an area that I don’t think most people spend enough time on when they’re forecasting out spending is like, um, hockey camp for your kid in seven months?

Oh yeah. Oh yeah. Oh yeah. And like those things. So we really do a lot of prompting about forecasting. And then the actual day-to-day sort of cashflow of your house, that’s where groceries, gas, if you take a taxi, if you go for dinner, like all that stuff. And we do that so we can get a snapshot of like what’s coming in and what’s going out, where are you at?

And this is hugely enlightening for so many people. We get, I would say weekly we get with our clients. So I’d say 90% of people are, “wow, the homework was like so terrifying and also enlightening because we didn’t even realize what was happening.”

Couldn’t agree more.

So that’s the jumping off point for every meeting, and that’s even for clients who are coming in and they’re like, “Hey, I wanna retire in five years.”

It is still the jumping off point because if you wanna know your projected spending in retirement, we need to know what your current lifestyle is and then what’s gonna change for you when you turn off the income tab. So it’s the same for everybody.

No, I couldn’t agree more. You said that very well and I agree that when people go through and do, and you case you’re called at homework spending summer, whatever, they look at all the ways the money are going out. They’re often shocked. I mean, they, they really are surprised. You mentioned a very important point about people tend to forget.

Lump sum obligations that are coming up that aren’t a car in house. So your example I loved, which is the summer hockey school for the daughter or for the son, whomever. Those tend to get forgotten, not budgeted for. Then impact the cash flow, affect the savings rate, and so on and so forth. I mean, you can see why for years I’ve advocated for pay yourself first, because I just like taking it off the top and then kind of people have to wing it with what they do going forward.