Why Cash Flow Matters More Than Your Yearly Budget

A budget can show you how much money you earn and spend.

But it should also show when your money is available.

This is where cash flow planning becomes important.

You may have a positive balance at the end of every month. Your yearly budget may also look healthy.

But first, you need to know if your money is enough for each month.

What is monthly cash flow?

Monthly cash flow shows the movement of money during each month.

You can look at:

• income

• expenses

• savings

• money available

• monthly balance

For example:

A monthly cash flow plan gives you an important answer: will your money be enough for each month?

If the monthly balance is negative, you know that your planned income is not enough to cover your planned expenses and savings.

This is not always a problem. You may have a large annual expense in one month, a planned purchase, or another reason for a temporary negative balance.

The important thing is to see this before the month starts.

A good budget should not only show how much you plan to earn and spend. It should also show when your financial plan becomes difficult and why.

This is where long-term financial planning becomes more useful than a simple monthly budget.

But there is another issue. A month can have a positive balance at the end and still be difficult to manage without the right tool.

Read next article to know more about Cash Gap and how to fix it.