Have you ever wondered where your salary goes at the end of the month? You earn well, yet little seems to remain as savings. This is not just your story; it is the reality for thousands of professionals in India. The solution is not merely making a budget, but understanding the movement of your money. That’s where cash flow mapping comes in as a powerful tool. It gives you a clear picture of where your money comes from and where it truly goes.
Let us explore this concept in depth and see how it can transform your financial health.
What is Cash Flow Mapping?
Cash flow mapping is the process of visually tracking the inflow and outflow of your money. It is far more comprehensive than a simple budget. While a budget tells you where you should spend your money, cash flow mapping shows where your money is actually being spent.
In this process, all your income sources (such as salary, business profit, rental income, etc.) and all your expenses (like rent, EMIs, groceries, other bills, and investments) are mapped in detail. This gives you a clear picture of where your money is going and where improvements can be made.
The main goal of cash flow mapping is to identify patterns in your spending habits, eliminate unnecessary expenses, and direct your money more effectively toward your financial goals.
Why is Cash Flow Mapping Important?
Financial clarity: It gives you a single, clear picture of where your money is going. You can easily see how much you spend in each category, for example, 15% on entertainment or 10% on eating out.
Identifying hidden expenses: We often overlook small daily expenses, like tea or unnecessary subscriptions. Mapping brings these hidden costs to light. According to a survey, the average person spends thousands of rupees annually on subscriptions they do not even use.
Better decision-making: When you know where your money goes, you can make smarter financial choices. For instance, should you really buy that new gadget? Can you afford to take on another EMI? The answers to such questions are hidden in your cash flow map.
Goal-based savings: Whether it is buying a house, funding your child’s education, or planning for retirement, every goal requires money. Mapping helps you identify where you can cut costs and save more for your important goals.
How to Create Your Own Cash Flow Map (Systematic Guide)
Creating a cash flow map is not as complicated as it sounds. You can make one using a diary, an excel sheet, or a mobile app.
Step 1: List All Your Cash Inflows
At the start of the month, write down your total income from all sources. This includes your salary, investments, freelancing income, rental income, or any other source of money.
Step 2: Track and Categorise Your Cash Outflows
This is the most important step. Throughout the month, track every small and big expense. Then, divide them into categories:
Fixed Expenses: These remain roughly the same each month, such as house rent, loan EMIs, and insurance premiums.
Variable Expenses: These change every month, like groceries, electricity bills, petrol, and mobile recharges.
Discretionary Expenses: These are wants rather than needs, such as dining out, shopping, entertainment, or vacations.
Step 3: Create a Visual Map
On a sheet, write your total income on the left side. On the right side, create columns for the categories (fixed, variable, and discretionary). Enter each expense under its respective category. At the end of the month, total up each category.
Step 4: Analyse and Adjust
Now review your map. What percentage of your income goes to each category? Do the results surprise you? This is where you will find room for improvement. See if you can reduce discretionary spending and redirect that money toward savings or investments.
Combining Cash Flow Mapping with the 50/30/20 Rule
To make cash flow mapping even more effective, you can use the 50/30/20 rule. This rule provides a simple structure for dividing your income:
50% on Needs: Spend half of your income on essential expenses such as rent, groceries, bills, transportation, and EMIs.
30% on Wants: Use 30% of your income on lifestyle choices that improve your quality of life but are not essential, such as hobbies, entertainment, or dining out.
20% on Savings and Investments: Save at least 20% of your income for financial security. This includes building an emergency fund, repaying loans, and investing in mutual funds or stocks.
When you create your cash flow map, you can see how close your spending is to these percentages. If you are spending 65% on needs, it may indicate that your lifestyle is expensive or that you need to increase your income. If your savings are below 5%, it is a warning sign that requires immediate attention.
Wrapping Up
Cash flow mapping is not just a way to track your income and expenses; it is a powerful tool to take control of your financial life. It helps you become more aware, disciplined, and focused on your financial goals. It is not a one-time activity but a habit that needs to be built over time.
Take the first step today to create your own cash flow map. It will equip you with the financial clarity and confidence needed to plan your future wisely and move closer to financial independence.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
