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Step Three: Compare Income - Expenses

Now that you know your income and expenses, it's time to analyze where you are, your cash flow.  What is cash flow?*  Cash flow is a fancy way of saying ‘what comes in - less where it goes.'   It’s calculated by subtracting expenses from income.  Cash flow is one of the ways that we can measure our financial health and the level of control we have over our money.  

If your cash flow is ...

Positive Cash Flow LOGO

  - a positive number, super!  It means that you are spending less than
    you earn and have money left over to redirect towards your financial

Break Even Cash Flow LOGO    

     - zero, that's ok!  
You’re breaking even but some adjustments will be 
       necessary to find money to redirect towards your goals.


   Couple with Bills LOGO

    - a negative number,
 it’s time to make some serious 
      changes.  It will be necessary to bring income and
      expenses into balance first, and see where you can
      find money for your financial goals.  Step four will
      help you through this task.

So what if your cash flow number doesn’t mesh with what is actually in your pocket at the end of the month?  First go back to and check to make sure there aren’t any transfer errors from your pay statement or the What Comes In: Add It Up worksheet.   If you have fluctuating income due to seasonal work or overtime, that too may affect this month’s numbers.

Then look at your tracked expenses.  Review your tracking method and look for missing entries.  Did you have a large expense that occurs periodically during the year, i.e., car insurance, gifts, back-to-school? Do you have spending leaks, or those little expenses that don't really seem worth tracking because they are so small?**  If it still doesn’t seem right, realize that it may take three months to get a really good idea of your spending.  And that’s ok because it will mean you have a better chance at putting together a manageable plan.

Next up:  Step Four - Make Choices

One thing that makes managing money a challenge is the jargon that is used.  Money is a language in itself, so if you’re not working with it every day, it can be confusing.   We’ll try to break it down into more real life terms.

**Spending Leaks:  It's only a $2.00 cup of coffee.
Although spending leaks are those little expenses that we may not think much about, because they are so small, they truly do add up.  For example, say you stop every morning for a cup of coffee at a coffee shop, gas station, or convenience store on your way to work. It’s only a $2.00 cup of coffee, so you didn’t track it on your expense worksheet.  But is it really just a $2.00 cup of coffee?

After one week, you’ve spent $10

1 month = $44

1 year = $520

5 years = $2,600

10 years = $5,200

20 years = $10,400

So, that $2.00 cup of coffee can really add up over the long run.   Keep this in mind when we talk about saving money.  A little can add up over the long run!