Budgeting, retirement planning and business planning all require you to project what your current and future cash flow requirements will be. It’s interesting how often people say they have a business plan, yet they have no financial projections to support the marketing efforts they have planned. It’s equally as perplexing to hear the comments people make when discussing how much their lifestyle will cost them after they leave work. The idea of projecting a budget seems almost impossible so they choose to focus on how much money they can accumulate instead. And on a day-to-day, month-by-month basis, creating a cash flow projection is a completely foreign concept to so many people, yet, it’s an absolutely critical tool for making just about every financial decision.

How? Regardless of whether you are making a projection for business, day-to-day life or retirement, simply start by listing the income you know you will be receiving each month for the timeframe you are projecting. Then, list the expenses you know you will have for that same period. Next, subtract the expenses to get either a surplus or deficit. If you have a surplus, then you can decide where to allocate that money. If you have a deficit, then you have to decide where you will come up with the shortfall. When you have done this for the month, carry on to the next month with the surplus or deficit accumulating from month-to-month.

Obviously, at some point, you will have to turn a deficit into a surplus. By projecting cash flow in this way, you now know how much of a deficit you’ll have given certain planned expenses and you’ll also be able to see what the return on your investment will be when you add income generating activities to your projections.