Money Monday 10

 

A Musician’s Guide To: Tracking Expenses, Budgeting & Cash Flow

Part 3:  Cash Flow

INTRODUCTION:

• Do you know your net worth?

• Do you know exactly how much money you spent yesterday, down to the cent? 

• Do you have a mental spending limit?

• Do you know how much profit you are making each month?

If you answered no to any of these questions, and want to get a better handle on your finances, this mini-series is for you.  

As self-employed musicians, it's important for us track our expenses, budget, and manage cash flow, not only for keeping our business finances organized come tax time, but also to maintain/manage our financial stability and ensure the longevity of our career.

Many of the principles and practices that are important for us as musicians to manage our finances effectively can be applied to anyone in any profession.  

By tracking our expenses, creating a budget, and prioritizing cash flow, anyone can maintain financial stability and ensure long-term financial success.  These are universal principles that can benefit anyone looking to manage their finances effectively, regardless of their profession. 

Step 1:  Net Worth

Step 2: Track the $ OUT

Step 3:  Budget the $ IN

Step 4: Manage Cash Flow

    Once you have a solid understanding of your expenses and you’ve started to form an overall budget for yourself you can easily manage your cash flow effectively.  

By tracking your income and expenses together in one place, you can stay on budget while seeing your net cash flow and be able to identify cash shortages or surpluses month-to-month and/or year-to-year. 

What is Cash Flow?

Cash flow refers to the movement of money in and out of your life.

    To manage your cash flow, it’s all about keeping a record of how much money is coming in, and how much is going out on a monthly/yearly basis in one place.  Seeing these numbers together, you’ll be able to plan a route toward your financial goals.

Positive cash flow happens when a business or individual is making a profit (i.e. more money in than out), while negative cash flow is, you guessed it, the opposite, spending faster than you can earn.

Positive cash flow is generally a good sign of financial health, as it shows you have the resources to pay your bills and invest in your future.

Effective cash flow management is beneficial for both businesses and individuals. 

    As full-time musicians, we started keeping track of our cash flow out of necessity; to make our lives easier come tax time reporting self-employment income & business expenses.  

Now, we would do it regardless, and recommend everyone try a cash flow spreadsheet as it helps to ensure that there is always enough cash on hand to cover expenses, helps us keep track of our profitability each month and allows us to invest in future growth. 

By tracking cash flow and making informed decisions about spending and investing, businesses and individuals alike can improve their financial stability and achieve long-term goals.

Our #1 Cash Flow Tool:   Spreadsheet 

    As I mentioned in Part 1, to track our expenses, we set up a monthly cash flow spreadsheet in the Numbers app, since we both have apple devices, we can share the spreadsheet between the two of us for easy access.

You can use any spreadsheet app or start a finance journal if you prefer pen to paper.

In the same expense tracking columns, you can track the money flowing into your life and use cell calculators to automatically calculate the difference as you plug in the numbers.

Example:

    (As a registered business, we are also required to charge HST and file an HST Return come tax time, where we can claim back HST we spent on business expenses, so we keep track of those amounts here as well.)

I’ve created a free template for those interested, you can download it here.

Setting up a spreadsheet like this has been the easiest way for us to keep track of every dollar flowing in and out of our life and I hope it can help you on your cash flow endeavours too.