Getting Started: Cash Flow
Cash flow is a visual way to show money coming in and the money going out. On the left we have money coming in. Then in the middle is where we have deductions for things like income tax, CPP/EI, insurance, and pensions for example. Then we have the remaining net income, the amount that enters your bank account each month. Finally, on the right, we have spending.
We start with broad spending categories like housing, transportation, personal, and spending/saving but then we go into more specific spending categories.
We want to check for discrepancies and opportunities to better understand your cash flow. The platform will automatically highlight “missing” amounts, these are amounts that are unaccounted for in your cash flow.
Income and spending are important parts of the plan, so having a good sense of cash flow is important. Ideally these discrepancies are addressed before moving on to the Foundation or Final Plan phases. Amounts of $100 or less are not a large concern but you can get as exact as you like.
Common "Missing" Amounts In The Cash Flow Diagram
Missing amounts are discrepancies the platform has identified in your reported cash flow. There are a few important discrepancies…
Missing Expenses: Missing expenses is a common cash flow discrepancy. The platform adds up all your reported spending, savings, and debt payments and if this total amount is less than your net income then the platform assumes there is a certain amount of missing expenses in personal spending. This can be resolved by adding some miscellaneous spending in Expenses or by being more specific with individual spending categories in Expenses.
Missing Gross Income: Missing gross income can happen two ways. One way is when net income is lower than gross income minus deductions, missing gross income could mean deductions are too high, net income is too low, or gross income is too low. The second way missing gross income happens is when total expenses are higher than net income, when expenses are $4,000 per month but net income is only $3,000 per month then the platform assumes at least $1,000 per month of gross income must be missing. If you’re in retirement, this will be made up in the Final Plan phase with investment withdrawals.
Missing Deductions: Missing deductions happens when gross income minus deductions is higher than net income. If gross income is $4,000 and deductions are $500 then we would expect net income to be $3,500. If net income is lower however, for example $3,000, then the platform assumes $500 of deductions are missing.
Missing Gross Rental Income: Missing gross rental income typically happens when net rental income has been over estimated. Net rental income should be gross rental income minus rental expenses. Changing the net rental income in the Income section will resolve this issue.
Missing Rental Expenses: Missing rental expenses happens when gross rental income minus net rental income is higher than reported rental expenses. In this case the platform assumes there are missing rental expenses. This can be resolved by increasing net rental income in the Income section or by reviewing and increasing rental expenses in the Expenses section.
