In Your 20s? You Must Understand Cash Flow
BERKELEY HEIGHTS, N.J. (TheStreet) --It's a big moment when recent college graduates get their first paycheck from an employer. The excitement quickly fades as they're introduced to the concept of payroll deductions.
Older workers know them by heart: income tax withholdings, medical and employee benefit deductions, FICA and employee retirement plan contributions. For younger workers, learning these and understanding the pay stub is a critical component of understanding their cash flow -- the guidepost to knowing how much they really have available to spend.
The personal cash flow is critical because it sets the foundation of a person's financial future. Having an accurate cash flow allows you to live below your means so you can set aside money for long-term goals. People who do not have a handle on their cash flow are more likely to overspend and build up credit card debt.
To prepare a personal cash flow, you can of course use a personal finance program such as Quicken (INTU). I prefer the old-school method of creating a cash flow spreadsheet.Let's start with the revenue side, using the pay stub as your starting point. Net take-home pay is essentially your revenue. Before assuming that is a good number, though, you need to check two things: First, if your income tax withholdings are a reasonable estimate of your tax liability. If your tax withholdings are too low, fill out a new W-4 with your employer. You will need to adjust down your net take-home pay to reflect higher tax withholdings.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV