How Cash Flow Analysis can Improve your Mental Health

The American Psychological Association has found a direct correlation between financial stress and your mental health. In fact, studies have shown that 69% to 72% of Americans have financial stress and that 20% to 25% have severe financial stress.

The first step to alleviating financial stress is to understand your cash flow. Knowing how much money is coming in and going out of your household is essential to making confident financial decisions and thereby alleviating your stress. 

What is a cash flow analysis?

In a nutshell, a cash flow analysis is a detailed breakdown of both your income and spending on a monthly basis. To get the most accurate picture of your spending habits, it’s recommended that you track your income and spending over a three month period. 

You can complete a cash flow analysis using an online tool such as Quicken or Mint, or even just a simple Excel spreadsheet. You could also download my Cash Flow Analysis template.

What to track

Include your net income from all sources, including payroll, bonuses, reimbursement, interest income, rental income, and spousal support and child support. 

When it comes to expenses, it’s important to include all areas of spending. Tracking your spending by category makes it easier to ensure that all spending is included, and will give you an idea of where the bulk of your cash is being spent. Examples of expense categories to track include housing, food, transportation, health and fitness, personal and family, education, financial, shopping, and pets.

Once everything is noted, subtract your total expenses from your total income.  What remains is the amount you have to invest. If your expenses exceed your income, you’ll be able to make informed decisions on future spending.

An example

My son realized that he spent way too much last month. So, to determine where all his money went, we did a cash flow analysis. His income is from his restaurant and landscaping jobs. As a teenager who lives at home, his expenses mainly include car insurance, gas - which has increased, and restaurants for meals out with friends.

During this particular month, unplanned car maintenance and frequent eating out with friends stood out as key factors to his overspending. The car maintenance couldn’t have been avoided, but the going out expenses were enlightening. 

Through the cash flow analysis, my son was able to see that when he added up the food and fuel expenses, just one trip to his favorite restaurant cost the equivalent of two hours of his average take-home pay. Knowing this, he can make informed decisions going forward. 

Empower yourself

People tend to avoid doing a cash flow analysis out of procrastination, fear - or both. But only when you have a clear understanding of how you spend your money can you make positive changes that can alleviate your financial burden and ultimately your stress.

So, Just Do It. If you’re married, I recommend completing this process with your spouse to get a clear picture of your household cash flow. The results will empower you to confidently make spending decisions going forward. 

Are you ready to get started? Download my free Cash Flow Analysis Template