Understanding Your Current Role of Financial Status - Cash Flow Statement

Understanding Your Current Role of Financial Status - Cash Flow Statement

When you want to understand your current financial status, two statements will help you, the first one is a cash flow statement and the next is a net worth statement. Let us look at the cash flow statement briefly in this article.

Cash Flow Statement

It would tell you whether you are generating surplus after paying your taxes and after your lifetime expenses. The data you are is to be taken for a financial year as some of your expenses would be yearly. We should take care of your thumb rules which will tell us whether your saving enough and not spending too much. Years of 50/30/20 guideline which will help you track your budget.

The Year 50 stands for your expenses. It should be a maximum of 50% of your take home pay, that is after you pay your taxes. And this would include all your household expenses, your rent and EMI. Household expenses would include your utility bills, food, entertainment, education, fuel, etc. The 30% here stands for saving. You should be able to save at least 30% of your take home income. And this saving would be invested towards your long term goals. Like your kids higher education, your marriage, your retirement planning etc.

And the last 20% of your take home pay should be your floating expenses. For your short term goals, for collecting emergency funds, short term goals could be buying a car, your vacations, buying electronic items, etc. Now what you seen in front of you is the cash flow statement by Alex and John for the financial year 2015-2016.

Year 2015-2016	Alex Monthly	John Monthly	Total Annual
Inflows Salary Interest on FDs Rent	75,000 1,666 0	1,00,000 3,334 0	21,00,000 60,000 0
Total Inflows	76,666	1,03,334	21,60,000
Outflows EMI Household Expenses Contracted Investment Outflows (Insurance Premiums + SIP) Vacation Others Investments Taxes	30,000 21,500 10,000 5,000 0 3,400	30,000 26,500 10,000 5,000 0 9,000	7,20,000 5,76,000 2,40,000 1,20,000 0 1,48,800
Total Outflows	69,600	80,500	18,04,800
Surplus/Deficit	6,766	22,834	3,55,200

So now that we have seen the cash flow statement of Alex and John. Let us check if saving and floating expenses are as per our thumb rule or not. The percentage expenses can be calculated like this, you could add your EMI's and your household expenses divided by your take home pay that is Gross income - Taxes. And in this case it works out to be 66.42%, which said that it has to be maximum 50%. So this is something that purulent polite can work on.

Read: Importance of Financial Planning The next is your saving percentage you can add your surplus and contracted investment divided by your take home pay that would give you your saving percentage. In this case it works out to be 30.50%, which is well closed to a thumb rule which says it would be minimum 30%. Next is the percentage of your floating expenses, so the only other saving that can be seen from the cash flow statement is for their vacations. This saving divided by the take home pay would give you your floating expenses. In this case it works out to be 6.14%. It means purulent polite is, well for the short term needs like vacations. This is something they have to work on as well. The next statement that tells you the current financial statement is the net worth statement.