Cash Flow Mapping and Budget Reviews

Cash flow mapping tracks money entering and leaving your accounts each month. Unlike net worth, which measures accumulated wealth at a point in time, cash flow reveals the ongoing patterns that either build or erode that wealth. A structured approach to categorizing income and expenses makes budget reviews efficient and actionable.

Income Sources

Primary Income

Primary income comes from employment and represents the largest income source for most households.

Components of employment income:

• Base salary (gross pay before deductions)
• Overtime pay
• Commissions
• Tips
• Employer bonus payments

Tracking note: Use gross income for planning purposes, then account for taxes and deductions separately. This provides clearer visibility into your total compensation and tax burden.

Variable Income

Variable income fluctuates month to month and requires different treatment in cash flow planning.

Bonus income:

• Annual performance bonuses
• Signing bonuses
• Retention bonuses
• Profit-sharing distributions

Best practice: Do not include irregular bonuses in your baseline monthly budget. Instead, create a separate plan for bonus allocation when received.

Investment Income

Investment income comes from assets you own.

Types:

• Dividend payments from stocks and mutual funds
• Interest from bonds, CDs, and savings accounts
• Capital gains distributions from mutual funds
• Rental income from investment properties

Tracking note: Distinguish between income reinvested automatically and income deposited as cash. Only cash deposits affect monthly spending capacity.

Other Income Sources

Additional income streams:

• Side business or freelance income
• Rental income from property
• Alimony or child support received
• Social Security benefits
• Pension payments
• Annuity payments

Expense Categories

Fixed Expenses

Fixed expenses remain constant month to month and are contractually obligated.

Housing:

• Mortgage payment (principal + interest) or rent
• Property taxes (if not escrowed)
• Homeowners or renters insurance
• HOA dues
• Home warranty

Transportation:

• Auto loan or lease payment
• Auto insurance premium

Debt obligations:

• Student loan minimum payment
• Personal loan payment
• Credit card minimum payments

Insurance:

• Life insurance premium
• Disability insurance premium
• Health insurance premium (if not payroll deducted)

Subscriptions and memberships:

• Gym membership
• Streaming services
• Software subscriptions
• Professional dues

Variable Expenses

Variable expenses fluctuate based on usage and choices.

Utilities:

• Electricity
• Natural gas
• Water and sewer
• Trash collection
• Internet and phone

Food:

• Groceries
• Dining out
• Coffee shops
• Work lunches

Transportation:

• Gasoline
• Public transit fares
• Parking
• Tolls
• Rideshare services

Personal:

• Clothing
• Personal care and grooming
• Healthcare (copays, prescriptions, dental)
• Pet expenses

Discretionary:

• Entertainment
• Hobbies
• Travel
• Gifts
• Charitable donations

The 50/30/20 Framework

This framework allocates after-tax income into three categories.

50% Needs: Essential expenses required for basic living 30% Wants: Discretionary spending on non-essentials 20% Savings: Money directed toward financial goals

Framework Applied to $12,000/Month Income

Household profile:

• Gross monthly income: $15,000
• After-tax monthly income: $12,000 (effective 20% tax rate)

50% Needs ($6,000):

Under budget by $370, providing buffer for unexpected essential expenses.

30% Wants ($3,600):

Under budget by $925, which can absorb irregular wants or move to savings.

20% Savings ($2,400):

Meets target exactly.

When 50/30/20 Doesn't Fit

High cost-of-living areas often require adjusting the framework.

Alternative for high-cost areas (60/20/20):

• 60% Needs
• 20% Wants
• 20% Savings

Alternative for aggressive savers (40/20/40):

• 40% Needs
• 20% Wants
• 40% Savings

The key principle: savings should be at least 15-20% of gross income for those in the accumulation phase.

Worked Example: Monthly Cash Flow Map

Household: Dual income, $12,000 combined monthly take-home pay

Income Detail

Note: Actual take-home varies with bi-weekly pay schedules. Two months per year have three paychecks.

Expense Detail

Monthly surplus/deficit: $11,000 - $4,395 - $1,350 - $3,000 = $2,255 surplus

This surplus accumulates in checking and should be allocated monthly to specific goals or moved to savings.

Budget Review Cadence

Weekly Quick Review (5-10 minutes)

Purpose: Catch overspending early before it compounds

Review items:

• Check account balances against expectations
• Review transactions for errors or fraud
• Note any unexpected large expenses
• Assess discretionary spending pace for the month

Monthly Detailed Review (30-45 minutes)

Purpose: Complete accounting of the prior month

Process:

1. Categorize all transactions
2. Compare actual spending to budget by category
3. Calculate total income received
4. Calculate savings rate achieved
5. Identify categories with consistent overages
6. Adjust next month's budget if needed
7. Roll over unused budget amounts or reallocate

Monthly review date: 3rd of each month (allows all transactions to post)

Quarterly Trend Analysis (45-60 minutes)

Purpose: Identify patterns across multiple months

Analysis items:

• Average monthly spending by category over 3 months
• Seasonal patterns (holidays, summer travel, heating costs)
• Income variability if self-employed or commission-based
• Progress toward annual savings goals
• Categories requiring structural changes vs. one-time adjustments

Annual Budget Reset (2-3 hours)

Purpose: Rebuild budget based on actual experience and updated goals

Process:

1. Review full year of actual spending by category
2. Compare to prior year for major changes
3. Account for known changes (salary increase, mortgage refinance, new expenses)
4. Set new category budgets based on actual data
5. Align budget with updated financial goals
6. Update automatic savings amounts if income changed

Best timing: December or early January

Tracking Methods

Spreadsheet tracking:

• Download transactions from bank
• Categorize manually
• Create monthly and annual summaries
• Full control over categories

Budgeting software:

• Automatic transaction import
• Pre-built categories
• Visual dashboards
• Examples: YNAB, Mint, Monarch Money

Envelope system (digital or physical):

• Allocate specific amounts to categories at month start
• Spending stops when envelope is empty
• Best for variable discretionary categories

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Cash Flow Review Checklist

• Documented all income sources with amounts and frequency
• Listed all fixed monthly expenses
• Categorized variable expenses for past 3 months
• Calculated average spending by category
• Applied 50/30/20 framework to current income
• Identified categories exceeding framework targets
• Created monthly budget with specific dollar amounts per category
• Set up tracking system (spreadsheet or software)
• Scheduled weekly quick review time
• Scheduled monthly detailed review date
• Calculated current savings rate
• Compared savings rate to target (15-20% minimum)
• Created plan for regular surplus allocation
• Identified one category to reduce spending this month
• Set calendar reminder for quarterly trend analysis