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The Most Important Thing
Cash flow is the most important aspect of money management. Without enough money coming in, you cannot pay your bills! You can have $50,000 of credit card debt, but as long as you can make your minimum payments (and still eat) you will not go bankrupt. However, when your payments exceed your income, you will eventually run out of money, no matter how many new credit cards and loans you receive. Thats why you need disposable income.
Having disposable income is a sign of positive cash flow. It means that after you pay off all your bills you have something left. Everyone needs disposable income to pay bills from recreation, medical problems, children, and other unforeseen financial problems. So how do you know if you have disposable income, or how much you have? Thats where a monthly budget comes in handy.
The Monthly Budget
Now I know what most people are thinking! You have to have a computer and a spreadsheet, and keep track of everything for a month to see what you are spending money on. Well if you want to do that, OK. But, I think most of us have a pretty good idea of what our monthly bills total. Basically, there are only two categories to put bills in: 1. Bills that must be paid for you to live, eat, stay healthy, and get to work and 2. All other bills.
The "all other bills" is the category you can do the most about. Look hard at these bills and see if you can eliminate some of them and create more disposable income. If that doesnt increase your disposable income you may have to look at reducing your necessities by lowering car payments, house payments, etc.
Your only other choice is to increase your income. Ways to do this include: reduce your income taxes (please see our article How to Pay Less Federal Income Taxes), get a higher paying job, or get a second job.
Once you have identified your disposable income with your budget, then you can start making choices about how it will be spent or saved. You will now be in charge of your cashflow.
1. You need to have a positive cashflow.
2. Make a simplified budget and divide your bills into necessities and nice to haves. This will identify your disposable income.
3. Take charge of your cashflow by making choices of how your disposable income will be spent or saved.
Home Financial Survival Guide - Part 2 Managing Your Credit Cards