Financial Education Center

Your net worth statement allows you to see what financial resources you have available. This section will help you see how much money you have coming in and how much is going out. You are now going to build a cash flow statement.

IMPORTANT NOTE: Your cash flow statement will need to be updated continuously to reflect changes during your career transition.

Calculating your cash flow is relatively easy and should not take you more than an hour or two. Here's the calculation, plain and simple:

INCOME − OUTFLOW = NET CASH FLOW

Your income primarily includes your earnings (salary and self-employment income), severance and unemployment. Other common income categories are interest, dividends, capital gains, investment and rental income, and pension and Social Security benefits. Your outflow includes all your expenses and, typically, what you pay yourself (what goes into savings and investments). Expenses are things like income taxes, mortgage and/or rent payments, medical expenses, vacations, clothing, utilities, etc. While you're working, we typically recommend you pay yourself first; i.e., put money in savings. However, during your career transition paying your expenses takes priority. (That doesn't mean you shouldn't save whenever possible.)

As you calculate your cash flow, total your income. Total your outflow. Take your income and subtract your outflow and you have your net cash flow.

To complete your cash flow statement, it is important to have all your information in one place. Let's look at your income first:

Income

Spend a few minutes gathering records for the following types of income:

• salary
• tips
• bonus
• commissions
• pension income
• self-employment earnings
• alimony income
• Social Security income
• scholarships
• public assistance
• interest income
• unemployment and Disability benefits
• dividends
• severance pay
• expense reimbursements
• any other income sources

In preparing your cash flow statement for your career transition, you will have to estimate how much income you can expect for the current year. If you've been laid off, you'll need to project your severance and unemployment benefits on a month-by-month basis. This will be extremely important in helping you review your monthly cash flow and determining how long you can afford to be out of work (see the section in How Much Time Do I Have to Find a Job? for examples). Don't forget to include all sources of family income.

If you're planning a career transition in the future, see the section How Do I Build a Career Transition Fund? to make sure this fund is big enough to get you through your transition period.

Write down your projected income as it exists without considering possibilities for increasing it right now. This way you'll get a true sense of what your situation looks like, and how much of a monthly shortfall you actually have. If you're concerned about your lack of income, see the section Where Will the Income Come From? where we'll discuss things you can do. Now let's look at your outflow.

Outflow

Spend a few minutes gathering the following records:

• paycheck stub—if you're still employed, review all the payroll deductions
• taxes (income, property)
• credit card statements
• mortgage payments
• checkbook or checking account statements
• living expenses (telephone bills, utility bills, etc.)
• mutual fund and brokerage statements for fees
• alimony and child support payments
• 401(k) plan statements
• retirement plan statements
• insurance statements

If you haven't gone through this process before, it can be overwhelming. This could be the first time in a very long time you've had to take a good hard look at your lifestyle and where your money goes. In other parts of this Career Transition section, we'll provide you with some helpful tips to gain control of your finances.

Your Personal Cash Flow Statement

Involuntary Transition: If you're currently out of work or have a fixed termination date, we recommend you use Cash Flow Statement I. This is a simple monthly cash flow statement that you can revise from month to month. Here's how we recommend you use it: Print out the blank statement. Make at least 12 copies. Put the name of each month at the top of each statement. Since you'll probably have variable income and expenses over different time periods, we want you to make sure that you account for these changes as needed. Please use a pencil for this exercise. You'll be using these statements in Reducing Your Expenses. You'll also be updating these statements over the course of your career transition as unplanned events occur.

Voluntary Transition: If you're planning a career transition that you don't plan to start for at least 12 months, use Cash Flow Statement II, an annual cash flow statement. Here's how we recommend you use it: Print out the blank statement.

Make several copies and use a pencil when completing the form. Complete the first statement as your income and expenses exist now. Use additional statements when you've come up with ways to either increase your income or reduce your expenses.

IMPORTANT NOTE: These cash flow statements are designed to help you identify planning opportunities. They need to be accurate but they do not have to be exact. You will need to estimate certain line items. Don't get so bogged down that you give up before completing the cash flow statement.

Keep in mind that these estimates have been prepared on a monthly and annual basis. You will need to keep an eye on expenses so that you don't come up short on cash. For instance, if your oil heating bills total $2,000 a year but are mostly due between October and March, make sure you reflect those bills in the appropriate months so that you'll have cash on hand.

Also, if your spouse gets a lump-sum bonus at the beginning of the year, or you are receiving a lump-sum severance package or accrued vacation pay, consider these funds as part of your emergency reserves (cash savings). You'll need to allocate a portion of these funds as income on a monthly basis, depending on how much of a shortfall exists.