“Budget” and “Cash Flow”: Why these should not be considered dirty words

It seems to happen every time. In any given conversation with people who aren’t in money-related professions (accountant, financial advisor, bookkeeper, tax preparer, etc.), when the words “budget” or “cash flow statement” come up, they get a look on their face as if someone shoved a handful of Sour Patch Kids™ in their mouth.

Even when talking with someone in money-related fields, when it comes to their own personal budget or cash flow, they get that same look. They KNOW the value of these things and they know the difference between them, but when thinking about them in their own personal lives, they get the screaming heebie-jeebies just like everyone else. Well, except perhaps for the really nerdy among us that like that sort of thing.

Why is that negative reaction the most common? Let’s take a closer look at these two important financial statements to make it easier to understand why they’re so useful and not as frightening as people think.

Cash Flow

A cash flow statement, either personal or business, is merely a breakdown of what money came in, what money went out, and what it was spent on during a given period. Notice the past tense used in all those; that’s on purpose. A standard cash flow statement is simply a historical record of what actually happened to the money for a particular period of time. It passes no judgements, it should tell no lies; it merely says, “this is what YOU did with YOUR money, good, bad, or indifferent”.

Knowing what your money got spent on and where it came from is critically important. If you don’t know your true situation of where it came from and where it went, you have no way, other than gut instinct, to guide your own money behavior. When it comes to money, human gut instinct is notoriously bad.

I’m not suggesting that you track every penny that comes and goes every day for the rest of your life. I would be the world’s biggest hypocrite if I said that. But sometimes doing exactly that for a month or two, or even a quarter, IS necessary to see just what’s happening with your money and if it lines up with what your instinct told you.


Budgets are the tool we use to (hopefully) tell our money where it should go and what it should do so that it behaves in a constructive manner. We want our money working for us, to do things like pay off debt or save for a future expense, and of course pay our regular monthly living expenses like food, utilities, entertainment and dining out.

The budget is an aspirational document and it looks to the future. It’s what we want to happen with our money and our lives going forward. It’s something we use to remind ourselves when we’re considering blowing a pile of money on an impromptu weekend trip to the beach, that we have other uses and goals for that money and maybe we shouldn’t be blowing it. If we really want a trip to the beach, we should introduce it in the budget and allocate some money towards a savings goal that is earmarked for that sort of thing.

We build the budget when we’re in our logical, thoughtful, and down-to-earth mode so that we can use it to reinforce our goals of saving for tomorrow, rather than spending for today. It’s ok to dream while budgeting; it is an aspirational document after all. But those dreams should be grounded in the reality that there is only so much money to go around and there are priorities to be addressed.

Not such dirty words

Maybe it’s the tedious nature of tracking money to build a cash flow statement that makes people hate it. Maybe it’s the guilt that may occur when realizing just how much has gone to impulse buys or inconsequential purchases.  Perhaps it’s the Peter Pan feeling of not wanting to grow up and make rational, sometimes sacrificial, decisions about how to budget our money that keeps people from doing it with any seriousness.

I can only speculate on why budgeting and cash flow awareness aren’t a bigger thing in people’s financial lives. I can, however, give you one cold, hard truth: those people that do a budget and keep an eye on their cash flow have a much better chance of achieving their goals and generally end up wealthier than the ones who don’t do it.

Ronnie Colvin