Dave Ramsey is an authority in the personal finance industry, after creating the 7 Baby Steps in the early 1990s. He regularly makes his views on relevant personal finance topics known. In this article, we’ll show you Dave Ramsey’s monthly cash flow plan and teach you how the plan works.
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What is Dave Ramsey’s monthly cash flow?
A monthly cash flow plan is a financial term that helps you understand how money flows in and out of your account within a specified period. As such, to appropriately calculate your monthly cash flow, it’s imperative that you can identify your expenses and income within the interested period and make a relevant comparison. It’s something that’s created to give you better control over your finances and sets you on the path to achieve both your short and long term financial aspirations. Dave Ramsey’s monthly cash flow plan is designed to make it easy to identify whether you have a positive or negative cash flow. To have a positive cash flow, then your income must exceed your expenses within a given time frame.
But why’s having a monthly cash flow important?
Before you begin to analyze or rejig your finance, it’s best to start with a monthly cash flow plan. The monthly flow plan helps you make changes, and it also helps you to identify relevant areas to make those changes.
The monthly cash flow plan is built on zero-based budgeting where the subtraction of your income and expenses is zero. Due to the zero-based budget that Dave Ramsey used to design the cash flow plan, it’s compulsory that users allocate expenses that’ll exactly match their income for a specified period. Doing this assigns a task to every dollar in your budget.
Following this plan doesn’t mean that you have nothing in your account. It means that you allocate your savings and other expenses. It helps you plan your money.
Dave Ramsey believes that you’ll be setting yourself up for disaster if you don’t have an idea of how to plan your money. It’s terrible to check your wallet one day and notice that you don’t have anything left without being able to pinpoint how you spent it.
How Does Dave Ramsey’s Monthly Cash Flow Plan Work?
Dave Ramsey’s monthly cash flow plan is a budget form with lots of blanks and lines to help you make things easy. It has enough space to help you list almost all expenses imaginable on the form to ensure that you don’t leave anything out. Dave doesn’t expect you to fill all spaces, but only relevant spaces. Here are steps to using the platform:
Step 1
There’s a box at the top right of the corner where you’ll have to enter your income. This should be the total income from all sources that you have to spend.
Step 2
In each category on the flow plan, e.g., Food, there are other subcategories. In the case of the Food category, there are subcategories like Groceries, Restaurants etc. Begin with the first subcategory, and gradually find your way down the list.
First, fill out a budgeted column, then sum up the content of the subcategory of the budgeted column. The sum of the category should be put in the category’s Total box.
You should pay attention to the percentages that Dave Ramsey recommends for each category. This helps you to avoid over-budgeting for each category.
Step 3
Lastly, enter your take-home pay in the text field that’s on the top page at the end of the page. After that, put the sum of the category in the Category Total box. Then subtract the sum of your Category Totals from the Take-Home Pay. The balance here should be zero. That feels great, doesn’t it?
Step 4
At the end of the month, write what you’ve spent in the column cut-out for that. This will make it easy to make necessary adjustments to your budget for the next month.
Note: The reason why Dave Ramsey designed this flow plan is to have a zero balance when you subtract category totals from your take-home pay.
Tips about Dave Ramsey‘s Monthly Cash Flow Plan
1. To properly optimize Dave Ramsey’s monthly cash flow plan, it’s best that you have the zero budget theory in mind. Or else, you should make use of another type of plan.
2. Don’t give information that is incomplete. For example, when you write the sum of your income, you may want to add only what you earn after deducting tax. Make sure that you write all your total income, be it freelancing incomes, full-time jobs, and any other part-time jobs.
3. Dave designed the flow plan on the basis of a zero-based budget, as such, your expense and income should be zero when subtracted. If this is not the case, then you’ve likely made an error.
Alternative to Dave Ramsey’s Monthly Cash Flow Plan
However, if you were crushed by a high credit card interest rate and you need to enrol in debt consolidation, debt management or nonprofit credit counselling service. Then the monthly cash flow plan cannot accommodate that, and you might have to opt for another option.
An alternative is to opt for a flow plan such as priority-based budgeting or activity-based budgeting.
Priority-based budgeting is one where you first expend your money on expenses that matter most. For someone in financial distress, this seems like the most ideal option.
In summary
Dave Ramsey is a top-notch personal finance expert that has made a massive positive impact on his clientele. As such, he designed a monthly cash flow plan that can assist users to track the in-flow and out-flow of money in their account. Dave believes that tracking this significantly reduces the possibility of financial irresponsibility and that it can help people achieve their financial goals quicker.