Day 2: Manage Money–Using cash flow to direct your money

Welcome to Day 2 of the 7-Day Financial Wellness Kickstart series!

If you haven’t read Day 1, click here to review it

Day 2 Money mantraI direct money to what’s important to me.

Here’s a money mindset shift: Stop saying, “I’m on a budget and I can’t do this or that.” I want you to start saying, “I direct money to what’s important to me.”

Today, we will discuss an element of budgeting—cash flow—that shows how you manage your money.

But first, it’s essential to know what a budget is and isn’t. 

Many people think of budgets as limiting oneself or as an act of deprivation. It’s neither of those things.

A budget is a framework to allocate your money into areas of your life which include expenses, debt, savings, and retirement goals. It’s really that simple. 

Have you created a budget and couldn’t find yourself sticking to it? I certainly have in the past. 

It might be helpful to think of money management in this way: 

  1. A financial plan is a roadmap to your goals.
  2. A budget allocates your money to expenses and goals.
  3. And cash flow is how your money actually moves in and out of your life.

You can’t stick to a budget if you’re unaware of how you’re money is moving. I discovered focusing on cash flow was the key to staying on budget and reaching my goals. 

Think cash flow, not budgeting.

Why is it important to calculate monthly cash flow?

It’s a strong indicator of financial health. Calculating your number helps determine if you’re living at, below, or above your means. 

And knowing your number helps identify the nonvalue-added expenses, unconscious purchases, and habitual spending that derail your budget and keep you from reaching goals.

Follow these steps to get started:

  • Step 1: Calculate your cash flow number
  • Step 2: Analyze your expenses

Step 1: Calculate your cash flow number

Cash flow is a measure of the money you receive and spend. Calculating your cash flow involves understanding where your money comes from and where it goes. 

Your cash flow includes the following:

  • Income such as salary, bonuses, tips, hourly wages, and self-employed and investment sources.
  • Necessary Expenses are costs that come every month. For example, fixed expenses like rent, mortgage, and debt payments and variable expenses like utilities and groceries. 
  • Discretionary Expenses are optional costs from choices you make. For example, you pay for streaming services, eat out, or choose designer clothes.  

It reads like a budget, right? Not quite. Unlike a budget that tells your money where to go, cash flow shows you exactly where it’s going.

How to calculate your net cash flow

  1. Use the workbook or grab a piece of paper, or use a spreadsheet.
  2. List your net income (after taxes).
  3. List all your expenses (necessary and discretionary).
  4. Subtract total monthly expenses from your total monthly net income.

The calculation looks like this:

Total Monthly Net Income – Total Monthly Expenses = Net Cash Flow

If your net cash flow is positive, then you have extra money to put toward your financial goals. 

If your net cash flow is negative, it may be time to cut back on expenses and increase income. 

Step 2: Analyze your expenses

Take a look at your cash flow. Indicate your results:

[  ] I am cash flow positive.

[  ] I am cash flow negative.

[  ] I am cash flow balanced.

Answer the following questions:

What are your three largest expense categories? (housing, transportation, food, entertainment, etc).


How do you feel about your monthly cash situation? 


Are there areas where you can cut back? 


How to improve cash flow

There are two ways to improve your cash flow:

  • Reduce expenses
  • Increase income

My recommendation is to look at reducing expenses first. We often find easy expenses to cut, such as subscriptions, warranties, or even reducing grocery bills by a few dollars per trip. 

There’s a dual benefit to reducing expenses: 1) you’re spending less and able to save more 2) it reduces the amount of money you need to make.

But here’s a truth: there’s only so much you can cut out before it affects your well-being. So, increasing income is essential for everyone. And in the next lesson, you’ll learn how to earn more.

Day 2 Exercise

Use the workbook and mark the following completed when done.

  1. [  ] Competed – Calculate your cash flow. 
  2. Cut expenses by 10% (Optional) – If your current monthly expenses total $2000, then find ways to reduce your expenses by $200.

Calculating your cash flow number and analyzing your expenses is something you should do every month. It increases your awareness of how you manage money–how money moves in and out of your life.

And with increased awareness of your cash flow, you’ll start to make more mindful spending choices resulting in better financial habits over time.

Breathwork exercise: 2-to-4 breathing
Breathwork can quickly and positively alter how you’re feeling.

Today’s practice is the 2 to 4 breathwork. You’ll inhale for 2 counts and exhale slowly for 4 counts. Repeat 5 times.

1. Take a comfortable seated position.
2. Tall back with your feet on the floor.
3. Relax your shoulders.
4. Close your eyes if you’re comfortable.
5. Take a deep breath in through the nose for 2 (count up: 1, 2).
6. Pause at the top for 1 count.
7. Release the breath slowly through the nose for 4 (count down: 4, 3, 2, 1).
8. Repeat 4 more times.

Progress check-in

At the end of this lesson, you should understand cash flow and be able to calculate your cash flow number and identify areas to improve.

And that’s it for today. You got this! See you tomorrow for Day 3.

With you on the journey,


Author of Happy Money Happy Life and Founder of The Smile Money

Additional reading

How to lower monthly expenses

How to reduce your debt-to-income ratio

How to Start a Budget 

Chapter 6 in the book, You Only Live Once.

Helpful resources

Access Manage Money pillar articles on Go ahead and dive deeper into areas you need help in right away.

Find the best budgeting and expense-tracking apps on

Day 3 Preview: Earn Money–Creating your income strategy

In tomorrow’s lesson, you’ll learn how to earn more and get introduced to multiple income streams.

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