This month we tap perhaps one of the most mysterious yet common financial matters for individuals, couples and families – young and old; the budget!  Reflecting on this popular topic, I offer that budgets fall on a continuum. From extremely rigid to spacious certainty, your budget style depends upon your unique money flow situation and your unique way of being with money. Before I delve into the nuances of Conscious Cash Flow and this continuum, I want to emphasize that budget is the same concept as these following terms: spending plan, cash flow statement, money allocation, values based spending, spending management; perhaps you know of others.  In the past ten years, some new words or phrases have developed to face the practice of budgeting.

For many, the word budget conjures up mixed and deflated feelings of failure, fear, and paralysis.  If this experience happens for you, simply notice that the word budget ties you in a knot. Breathe into the contracted space and continue reading.  The truth is: everyone has a budget. Whether one is conscious about their budget, and where they are located on the cash flow continuum, is the interesting exploration.

Conscious Cash Flow is a phrase I use to describe a person who has embodied the following attributes:

1. he or she is aware of where money flows in from, and where money flows out to;
2. he or she chooses where money flows out with a clear awareness of how much money is flowing in;
3. he or she is aware of the most beneficial “place” to be on the continuum for his or her unique situation at the present time.

The three statements are all equally important to embody conscious cash flow. In most practices and models, the first capacity is the focus, and the remaining two are ignored. The first capacity is to be conscious of where you are spending your financial resources, to be mindful of your values and to ensure that your money goes to what you value the most. The second capacity is a little more refined and requires individuals to be aware of money generation in relation to money outflow.

The second attribute is key. Here’s why:  As humans we get used to a pleasurable way of living, especially when income increases. It is called hedonics. If our income is a certain level, we can easily spend to that level. When and if income drops, it is generally difficult to cut back our spending habits to a lower level. Money income needs to be directly proportional to money outflow. Because we don’t always do a spectacular job with this relationship, emergency funds, savings and investments are built into financial plans to support shortfalls. The third capacity is a little more refined than the first two.  It comes online when capacities 1 and 2 are well practiced.

Depending upon your unique way of being with finances and form, you will be most effective with your money flow in some particular place on the continuum. For example, if you enjoy precision and like to create spreadsheets, quicken reports, and supporting measurements to provide clarity around your money flow, you might be most comfortable near the rigid side of the continuum. You would prefer to balance your checkbook (or cash outflow) each month and you value practical forms, provided in myriad selections, to document your financial situation.

On the other hand, if your cash flow – flows – and your unique situation does not warrant a tight management or you have delegated the practice to a bookkeeper, you might be on the spacious certainty side of the continuum. I want to emphasize there is no right or wrong place to be on the continuum. Most important is to embody capacities one and two, and consciously determine which practice serves you well, for number three.

Performing a Google search you will access many budgeting formats and opportunities to improve your spending practice. The simplest form I like to offer is described below.  When practiced with intention and care, it builds a strong foundation for money flow clarity and opens the portal for the next practice toward Conscious Cash Flow.

Conscious Cash Flow

Each person’s budget includes fixed expenses and variable expenses. Fixed expenses are items that do not change from month to month. Examples of fixed expenses are: rent, mortgage, loan payments, cable, phone plans, utility bills, retirement plans, gym membership and so on. Variable expenses are items that do change from month to month. Examples of variable expenses are dining out, entertainment, dry cleaning, gifts, and so on. Each person is living his or her own unique situation. This means that your fixed and variable expenses will be different from your neighbor’s expenses. Even in my examples above, you may have a fixed dry cleaning bill each month rather than a variable expense.  For this reason…

1. Your first step toward conscious cash flow is to determine your fixed and variable expenses.
2. The second step is to determine under each category how much you value the item you are allocating money to. For example, you may spend a fixed $50 a month on a gym membership and determine that you no longer value this membership because you are not using it. This is the opening to make a new choice and follow that choice with an action (i.e. recommit to going to the gym – higher value, or cease spending money on the gym – align current value with money allocation.)  Another example you may determine that your variable monthly grocery bill is all over the map and you would like to create more awareness around your monthly cash allocation to food. This is the opening to make a choice for a fixed grocery allocation and develop a new food spending practice for your food.
3. Third step:  After you refine your budget for fixed and variable expenses, calculate how much of your budget is fixed and how much is variable. What is the ratio to fixed and variable?
4. Fourth step:  Now look at your cash income. What is the total income and how much of your total income supports fixed expenses and how much remains for variable expenses? These simple calculations illuminate your cash flow patterns. If the majority of your income goes to fixed expenses, your flexibility for variable expenses is limited. Please note, having high fixed expenses is not a problem; unless you are unaware and overspend each month.
5. Fifth step:  If you determine that you would like to shift the proportion of fixed expenses and variable expenses, your next step is to look closely at where you allocate your money and see if any items are candidates to change.
6. Finally:  If there are items to change, your next action is to make the change in your budget and create a practice to build the capacity to sustain the change.

How often you review your budget and cash flow is determined by where you locate on the continuum. In the beginning of this practice, you are generally on the more rigid side of the continuum and a monthly review is a satisfying beginning point.

As indicated, there are a plethora of budgeting and cash flow models to use in order to gain skills in your Conscious Cash Flow.  My offering in this article is to get you interested – starting with more awareness about the three attributes – and allow you to determine the next steps that support you on your financial fitness path.