How to Create a Personal Cash Flow Statement

Quick Answer

You can create a personal cash flow statement by gathering all the information regarding your income and expenses and determining your net cash flow.

Asian woman in black shirt looking at personal cash flow statement paper.

Throughout the month, you receive your paychecks, pay your bills and breathe a sigh of relief when you successfully meet all your financial obligations. But when it's all said and done, you may wonder, "Where did all my money go?" If you're unsure where your money is going, a personal cash flow statement may help you track and organize your spending and make it easier to set and achieve financial goals.

To create a personal cash flow statement, gather information on your income and transaction history for a specific period. For example, a monthly cash flow statement might be the most straightforward since bills are usually due every month, or you may prefer a biannual statement if your income varies from month to month.

Let's take a closer look at what a personal cash flow statement is, how to create an effective one and how it can improve your financial health.

What Is a Personal Cash Flow Statement?

Businesses commonly use cash flow statements to determine a company's net cash flow over a specific time period.

But why should businesses have all the fun? A personal cash flow statement can help you understand how much money flows into (inflows) and out of (outflows) your finances and your overall net cash flow. As a result, you'll glean a clearer picture of your overall financial health.

Your personal cash flow statement will include two sections:

  • Balance sheet: A balance sheet compares what you own (assets) against what you owe (liabilities) to calculate your net worth (assets minus liabilities) for a specific period of time.
  • Cash flow statement: Your cash flow statement, sometimes called an income statement, measures your cash inflows and outflows to determine your net cash flow for a defined time.

Seeing the numbers can shine a light on your finances, so you know where every dollar is spent and make changes as necessary.

For example, creating a personal cash flow statement may reveal you have more money left over each month than you think. As a result, you could decide to add more money to your emergency fund or investments that increase your cash flow and, subsequently, your net worth.

How to Create a Personal Cash Flow Statement

Creating a personal cash flow statement begins with gathering all the information regarding your income and expenses and determining your net cash flow.

List Your Cash Inflow Sources

Start by gathering as much income documentation as possible, including pay stubs and savings and investment account statements. Make a cash inflow list, which essentially includes any money you receive, including your salary, stock market earnings or rental property income.

Remember to only list available income since one of the primary purposes of your cash flow statement is to provide a clear snapshot of where you're receiving your money and where you're spending it. So, for example, if you have money in an investment account that reinvests your earnings, you may want to exclude that account from your list.

Once you itemize all of your income sources, add them up to calculate your total income amount.

List All of Your Cash Outflow

The next step to create your cash flow statement is to refer to your account statements, bills and other documentation to create a list of debts. Cash outflow shows where your money is going, so you'll want to include both necessary and discretionary spending, including:

  • Mortgage
  • Car loan
  • Average credit card payments
  • Student loan payments
  • Utilities
  • Health care bills
  • Gas
  • Groceries
  • Entertainment
  • Dining
  • Gym membership

Since the objective is to determine where your money is going, be as thorough as possible and include all regular expenses, no matter how small. Once complete, add up the total of your expenses to determine your total cash outflow.

Calculate Your Net Cash Flow

The final step to creating your cash flow statement is subtracting your total monthly outflow from your total monthly inflow to determine your net cash flow.

If your calculation shows leftover money, you have positive cash flow. Having positive cash flow confirms you're living within your means, and you can use your extra money to invest and grow your wealth. Alternatively, you could put your surplus cash towards other objectives like a child's education or a home purchase.

By contrast, if your calculation results in a negative number, that means your expenses exceed your income, and you have negative cash flow. Without extra income in your budget, your options are limited, but you can use the information to identify the necessary changes to get your finances back on track.

How to Improve Your Cash Flow

Whether your cash flow is positive or negative, you can improve your cash flow by implementing strategies that reduce your expenses and increase your income, including:

  • Creating a budget: A budget allows you to track your spending and savings, making it easier to pay your bills on time and reach your financial goals. Conversely, if you're not budgeting, it's easier to lose track of where your money is going and underestimate expenses.
  • Reducing your outflow: One of the benefits of creating a personal cash flow statement is the opportunity to review your statements and add up your expenses. As you do so, look for opportunities to cut expenses like canceling little-used memberships and subscriptions, dining out less or even consolidating high-interest credit card debt with a low-interest loan.
  • Increasing your inflow: Increasing the amount of money that comes in can help push your cash flow into positive territory. You may be able to increase your income by volunteering for overtime at work or requesting a raise if your salary falls below the market rate. Side hustles like driving for a ride-hailing or food delivery company are also good opportunities to boost your income.
  • Saving your surplus money: If you have positive cash flow, ensure you put some money towards your emergency fund or other savings and investment accounts. Having cash available can help you avoid taking on debt if you are suddenly faced with a large, unplanned expense like an expensive home repair or medical bill.

The Bottom Line

A personal cash flow statement is a valuable tool to help you understand where your money is going and how you can better manage it to grow your net worth. Generally speaking, money habits that improve your financial health also tend to improve your credit.

Free credit monitoring from Experian can help to show you how improving your financial habits may be helping your credit while also alerting you to potential signs of fraud and identity theft.