Once you have compiled a listing of your incomes and your expenses, you can put together the Sources and Uses of Cash Statement. This statement identifies each source of income as well as expenses. You can make each category as detailed as you wish. For example, in the expense section, you can expand lifestyle expenses to show Household Expenses, Food, Auto, Entertainment, Personal or whatever categories you wish. This could be helpful if you need to work on your budget. By adding more detail, you can figure out where you need to cut back.

(click picture for better view)

Notice the bottom line -- Surplus. This is a very important point. Surplus is an amount that hasn't been allocated to expenses or saved. It should be sitting in your back pocket or stuffed in your mattress. If you don't have this surplus then review your expenses to determine if they are correct. If so, then this surplus amount is a sum that you may be able to save in the future. Your other alternative is to consider that it will be spent on extra things that you are not paying attention to.

Some professional planners say that many clients cannot identify 15% to 20% of their expenses. And if this amount of money is being spent on items that they can't even remember, then such clients can surely afford a financial planner.

For me, surplus is a very important part of the current plan development. How the client prefers to treat surplus can be critical in the plan. If the client chooses to save it but then doesn't, the outcome of the plan will be overstated.

There are times when the opposite will result. A client may have a deficit cash flow. In this case, a thorough review of expenses need to be undertaken to see where costs can be cut. Sometimes it's critical to cut expenses to free up funds for necesary savings or insurance premiums.

Go to the Projections Section.