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If you read my August 27 post about how to calculate your net worth, and you haven't done that yet, pause here, and do that now.

After clarifying your net worth, the next puzzle is your cash flow.  Most people get tangled up in this for at least some portion of their adult life.

Cash flow.  Cash management.  Income & expenses.  Money in. Money out.

This is the snarly one - cash flow is the reason people feel like they're doing okay one minute and drowning the next, even when their net worth looks decent on paper.

Why is cash flow so hard?  It’s constant; it’s near impossible to stop all spending to analyze; there’s lots of transactions; there’s lots of ways to manage & interpret. 

You can have a million-dollar house and still run out of money for groceries. Your net worth can be high, and your cash flow low or negative.  You can't chip a couple of bricks off that million-dollar house to pay for your groceries.

Many of us feel guilty for not budgeting.  Most of us have tried and most of us failed at the traditional idea of budgeting.  Why is the term everywhere?  I have no idea.  In 22 years of advising, I have worked with 8 clients who budget in the traditional spreadsheet idea that just popped into your head when you read that.  Most of us need another option.

Building the Cash Flow Check that Works for You

Grab one month of your bank statement and credit card statements.   

Get a piece of paper or open a spreadsheet.  Create 3 columns: income, fixed expenses and variable expenses.  Give yourself 31 lines- now you can cover a month.

Record your income deposits- when do they happen and how much are they?

Move to fixed expenses: list everything that you pay for regularly in a roughly predictable amount.  Housing costs, utilities, subscriptions, transportation costs, regular activities. List the item, the amount and how often it occurs.  Compare your fixed expenses to your income- how much of your money is already spent?

If you need a break here, take one!  If you can record your variable expenses- groceries, gas, clothes, eating out, Amazon spending- these are all variable.  Some are very regular, and necessary, and they vary.  This is the category that usually explodes our attempts to ‘budget’.

To really understand what comes in and what goes out takes more than one month.  It’s worthwhile.  This is where you will start changing your outcomes, moving to your goals, reducing stress.

Your first run-through may be extremely rough, but if you've been scared to start anywhere, this is your way in.

What Your Numbers Are Telling You

Scenario 1: More came in than went out Congratulations - you're spending less than you earn. Your TFSA, RSP, or bank accounts are likely growing. This is the foundation of financial stability.  You may be ready to start planning to see what’s possible- many of my clients know they have enough to maintain their current lifestyle but aren’t sure what’s possible beyond that.  We all have goals and dreams; planning shows you what’s possible.

Scenario 2: Your bank account is fine, but you've been using your line of credit (LOC) You know some of what "came in" or was spent was actually borrowed from your house equity. You're spending your house.

Is this fine? Maybe. What did you use the line of credit for?  Was it a defined, necessary purchase that you can pay off with your cash flow?  Was it an expense to advance your career?  Without a plan, it won't be fine forever. It also won’t be fine if you’re using your LOC regularly, for various reasons and there is no scenario for a payback. 

Scenario 3: You have credit card debt you can't pay off You're spending more than you earn. Period. If you don't solve this, your net worth will go down and you'll eventually find yourself between a rock and a hard place.

Scenario 4: You aren’t sure what’s happening.  There have been numerous transactions, across your bank account, RSP, TFSA, mortgage and LOC.  You’re not sure if you’re ahead or treading water. You want to do some things but aren’t sure if they’re affordable.  This is common.  Taking the time to find your net worth and find your initial cash flow will start to answer what’s happening.  If you can, go back to what your debt was last year, and the year before.  Find your tax returns and check your income over the last few years.  List out your fixed and variable expenses.  This will start untangling what’s happening.  Once you know more, you can make more confident decisions.

The Most Dangerous Financial Myths

Now that you understand both net worth and cash flow, let's bust some myths that keep people financially stuck:

"My income is high, so I can spend and not worry." False. High income with higher spending still leads to financial stress.

"My net worth is high, so I'm fine." False. Net worth without cash flow management leads to the "house rich, cash poor" trap.

"It's an investment property." I frequently hear that it’s fine for an investment property to have a shortfall every year.  Why?!  If it’s not for a short-term reason, that you can see correcting in the near term, why would you accept this?  “Prices always go up,” under-water owners say.  No, they don’t.  Real estate prices go up and down.  Protect your financial stability and do your math first.

"Borrowing to invest is smart." It’s also risky.  You’ve stacked additional risk on top of the market risk.  In my experience, borrowing to invest works only when there’s plan to pay back the loan without using money from the investment. 

Protect your financial stability, do your research and do the math.

Why Experience Matters More Than Education

This brings us back to why you couldn't have learned this effectively in high school. These nuances only make sense when you own stuff, when you have real financial obligations and opportunities.

A teenager can memorize that "assets minus debts equals net worth," but they can't understand why their car shouldn't be on that list, or the full implications of line of credit debt, or why high income doesn't automatically mean financial security.

You needed to live it first. The good news? Now you have.

The Power of Knowing Your Numbers

Knowing how much of your income is already spent, your fixed expenses, is really powerful.  This is the clearest way to see how much is already scheduled, already has a destination, and how much is left over to make choices on. 

One of my mid-career families were extremely frustrated with their cash flow.  Month to month, they were running short and using their line of credit.  Their income was high, and this was still happening.

Two things were happening that contributed to the shortfall- their fixed expenses were high.  They didn’t have a lot of room to make choices month to month.  Before they knew this, frustration was causing them to spend more (“Let’s go out for dinner, we work hard, we deserve it.”  “How can we be short of money?  I’m stressed, let’s book a trip”).  Once I organized their expenses, and they could see how much was already scheduled to be spent, and where, it reduced the stress.  Knowledge, and context, was power for this family.  The other adjustment they made was in their mortgage payments- they had two properties, and two mortgages.  They have set up each mortgage with bi-weekly payments (the bank rep told them this would get them paid off faster, and who doesn’t want that?).  The bi-weekly payments didn’t line up, something was coming out every week, and they hadn’t added up the monthly cost correctly.  A $200 bi-weekly payment isn’t $400 a month, it’s $433 a month.  52 weeks a year; 26 bi-weekly payments…you can see how easily this happens.  This family was paid once a month. It was too confusing to have all of these bi-weekly payments coming out; they had tried and tired to budget with no success.  After planning, they adjusted their payments back to monthly, and lined up the withdrawal date with their pay deposit date.  Now, when they looked at their bank account, they weren’t mentally subtracting the multiple mortgage payments. 

Clarity can go a long way to increasing your financial stability.

Your Next Steps

You now have the two foundational pieces of financial literacy:

Net Worth - your financial snapshot
Cash Flow - how money moves through your life

Start here. Master these basics. As you get more comfortable, you can add layers of complexity, but don't get bogged down and give up.

Update your net worth once or twice a year. If you're actively paying down debt, update more often and celebrate positive changes.  Adjust for negatives, when needed.

Check your cash flow as often as your situation, or you, needs to.  When something feels off financially, it’s probably your cash flow. 

The Compound Effect of Financial Clarity

When you consistently track these numbers, the fuzzy financial anxiety starts to dissipate. Those hours you used to spend each week worrying about money? They get redirected to actually managing money.

You start making decisions from a place of knowledge instead of fear. You spot problems before they become crises. You recognize opportunities when they appear.

Most importantly, no one can ever again sell you a financial product or service that doesn't make sense for your situation. You'll have the foundation to ask the right questions and evaluate the answers.

You've just taken a huge step toward getting a handle on your financial life. Keep practicing this, and you'll be amazed at what you start to see about your own situation.

Disclaimer: This content is intended for general informational purposes only and should not be considered personalized financial advice. Every individual's financial situation is unique, and what works for one person may not be appropriate for another. Before making any financial decisions or changes to your current situation, please consult with a qualified financial professional who can assess your specific circumstances and goals.