Personal cash flow: find out where your money really goes

A budget says what you plan to do with your money. Cash flow says what actually happened. It is the record of everything that came in and went out over a period, usually a month. Without it, any budget is a guess, because you don't know how much you really spend on each thing.

1. Record the money coming in

Count only what actually reaches your account: your take-home pay after taxes and contributions, not your gross salary. Add the month's other income, such as side work, interest on savings, rent from a room or benefits.

If your income varies from month to month, for example with commissions or self-employment, use the lowest amount of recent months as your reference. It is better to be surprised on the upside.

2. Separate your fixed expenses

These are the payments that repeat with the same amount: rent or mortgage, loans, insurance, internet and phone, a transport pass, the gym. Also include annual bills divided by 12. Car insurance of €360 a year means €30 a month you should set aside.

3. Record your variable expenses

Groceries, eating out, fuel, electricity, clothes, leisure, gifts, health. This is where money tends to vanish without you noticing, and it is also where you have the most room to change. Log each expense as it happens, because nobody remembers everything at the end of the month.

4. Work out your surplus or deficit

Subtract everything that went out from everything that came in. A positive result is a surplus. A negative one is a deficit, which was paid for with savings or credit, even if you didn't notice.

Example: €1,500 of take-home pay, €780 of fixed expenses and €560 of variable ones leave a €160 surplus. If variable expenses had been €760, the month would have closed with a €40 deficit.

It is also worth looking at your discretionary income: what is left after paying for housing, food and other necessities. That is the money you decide on freely, and it is where your savings come from.

5. Decide where the surplus goes

A surplus left sitting in your current account gets spent. Give it a job as soon as the month ends:

• An emergency fund, until it covers three to six months of essential expenses.
• Short-term goals, such as a holiday, a course or a new car.
• Long-term goals, such as retirement or a deposit for a home.
• Paying down high-interest debt, such as a credit card balance.

Repeat it every month

A single month can be misleading: some months bring gifts, insurance renewals or repairs. After three months you start to see patterns, and that is when a budget starts to make sense.

In FinanceFlow, the free plan already does this: you split income and expenses by category, mark fixed expenses as recurring, and the dashboard shows the month's balance and your biggest spending categories. On paid plans you can also snap a receipt and the app fills in the details for you.