How To Manage Your Cash Flow

The start of a good financial plan is creating a family budget.  When you review your income, chart your expenses and monitor your spending, you get a good idea of where your money is going.

Whether you have an envelope cash system or use a spreadsheet format (or any other method), you can plan to have enough for what you need and even what you want.  Then you make decisions and set goals that will adjust the course of your spending on a daily basis.

Managing Your Cash Flow

In order to effectively manage your cash flow, you need to figure out how much you should spend in each category.  I recently came across an example of how much, as a percentage of income, is spent on average for typical budget items.

Spending Category Percentage
Housing – mortgage/rent, taxes, insurance, repairs, décor 25 – 35%
Utilities – hydro, heating, water, phone, cable 5 – 10%
Food – groceries, eating out 5 – 15%
Debt payments – credit cards 5 – 10%
Transportation – loan, gas, registration, insurance, maintenance 10 – 15%
Clothing 2 – 7%
Medical – insurance, dentist, optometrist, medications 5 – 10%
Personal – toiletries, cosmetics, gifts, subscriptions, education 5 – 10%
Recreation – entertainment, vacation 5 – 10%
Charity 10 – 15%
Savings – emergency fund, retirement, special purchases 5 – 10%

There are no rules for how much you should spend in each category.  The value of a list like this is for comparison purposes.  You can consider each of your expenditures and decide whether they are fulfilling you needs in the best way possible, or whether you need to consider making any changes, and adjust accordingly.

Of course, everyone will have different spending patterns depending on age, size of family, ages of children, income level, where you live, type of clothing needed for work and distance to employment and shopping, to name a few variables.

Are you “Average?”

It’s interesting to see how much people spend in various categories, but be cautious about using the data to develop your own budget.  It’s not important to fit into a “cookie-cutter” scenario.  Tweak it to fit your needs.

In my case, I don’t have a mortgage or any debt payments.  I don’t have children at home, so I have no expenses there.  On the other hand, I pay more for utilities and medical expenses are huge at my house.

Check to see whether you may be overspending in some categories.  You may be carrying too much debt, or maybe you’re not saving enough.

Related: The Best Time To Start Saving Is Now

Remember the most important thing is managing your money in such a way that you’re able to save and invest enough to meet your financial goals and prepare for your future.

Do you think any of these categories are too high or too low?

How does your own budget compare to the average shown here?

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  1. Perry Stubb on April 18, 2012 at 3:06 am

    GNUcash is a tool one can use to track his/her finances and networth. I have been using it for 3 years now. Really satisfied. One can track expenses/ income and analyze using various reports. It also has support to import data from other tools like Quicken. Above all it is free.

  2. Guest on April 18, 2012 at 6:41 am

    I love categorizing my transactions on and reviewing the pie chart of my spending!

    I’m surprised at the low percentage for groceries. Groceries are really expensive in my neighbourhood, and account for almost 20% of our monthly budget (two adults; quality food and nothing processed/pre-packaged).

  3. Grady Pruitt on April 18, 2012 at 8:18 am

    I like Gnucash too, Perry, though I haven’t been using it as much as I should 😀

    Boomer, I know I’ve always had trouble keeping a budget, but I’ve recently found setting money aside for specific purposes has been working for me. I’m still working on it, but making progress and it’s really helping me. I found this strategy in T Harv Eker’s Secrets of the Millionaire Mind.

    Anyway, thanks for sharing!

  4. krantcents on April 18, 2012 at 8:28 am

    I am above average because I have no debt except for a small mortgage. My housing expense (including mortgage payment, taxes, insurance & repairs)represents less than 15% of my income. I save considerably more (35%)than average as well.

  5. MarieK on April 18, 2012 at 9:14 am

    Hubby and I are “DINKS”…remember that acronym? Double income, no kids. lol Can never have enough saved!! lol but savings rate is about 30%. No debt. Eat out waaaaay too much, though, and would like to increase charitable giving. Goal is to set up some kind of scholarship at a local university at the post grad level but pricey. Will definitely take some planning.

    Am wondering how others apportion money for upcoming planned expenses such as vacations, different vehicle, etc. Do you find that opening a bank account for each of these works for you? I think that it might for me but could become a bit clumsy. Just looking for ideas.

    • Boomer on April 18, 2012 at 3:28 pm

      @MarieK: For my large discretionary expenses I keep a single bank account for that purpose. I made a spreadsheet to keep track of the monthly deposits (and withdrawals) for each category that I’m saving up for. No doubt others will have a different system.

  6. SE Book on April 18, 2012 at 12:04 pm

    Nice I had never heard of that way before, But when you think about it your bills are almost always never the same each month so to do averages is a great way to go about it.

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