Have you ever tried to draw the flow of your finances and build a Financial Map? If you have not already done so, find out now how to get started and why a Financial Map can be very useful support in managing your finances with teckhustlers.
I had never drawn my money flow before, although I had seen it done by many American Personal Finance experts.
Then while looking for inspiration for the new article I came across an article written by one of my favorite bloggers, Zach of Four Pillar Freedom.
In the article, we talk about 5 ways to optimize finances.
And you know what?
The Financial Map tool is put in the first place.
A tool that helps you understand exactly how money flows from the moment it enters your holdings until it flows into a deposit account, a fund, an ETF, or is spent to meet the needs.
I, therefore, decided to draw my Financial Map with a little skepticism.
With amazement, I was able to establish the exact flow of my money.
I got a better understanding of how important it is to focus on cash flows and how much more complex they actually are than they seem.
On this occasion, I formalized some new rules that I am now sure I will be able to respect and I have promised myself to update this tool regularly in order to guide the management of my personal finances.
But let’s see what a Financial Map is and what are the steps to create it and use it to the fullest.
In this article
- What is the Financial Map?
- What is it for?
- What parts does a Financial Map consist of?
- How to draw your Financial Map?
- Conclusions
What is the Financial Map?
A Financial Map is a schematic representation of the cash flows affecting your finances.
It shows the Incoming (Income) and Outgoing ( Outgoing ) flows.
This map can be represented: with reference to a specific moment (eg month/year) or on a general basis (as in the example of the figure above).
It can also be a planning tool and allow you to plan your income and expenses.
What is it for?
The Financial Map allows everyone to understand how much money goes in and how many out of it in a given period.
If instead done on a prospective basis, it allows you to understand if you will have the resources to make a certain expense or achieve a certain financial goal.
It will then allow you to check how much income you expect and what expenses you will have to face.
It will also allow you to give yourself rules in order to automate your finances and investments, limit and try to control and forecast your expenses.
It is therefore in summary a planning, control, and forecasting tool that will allow you to focus better by identifying the priority on which to focus in order to improve your financial management.
It will allow you to understand how much income you generate if you need more income if your expenses are excessive and if you have rules that you apply regularly.
What parts does a Financial Map consist of?
Basically, there are 2 relevant sections in a financial map: Income and Expense.
The Revenue is typically those from income working (employed or not) and return of capital, or arising from your investments.
In designing the Financial Map you will be able to apply the first automatism in allocating a part of your Income to Investment in a semi-automatic way.
In fact, you can apply the Pay Yourself First principle and establish that a certain amount of money is transferred directly, as soon as it becomes available to you, in certain investment categories.
You can use it to feed an Emergency Fund or to invest in ETFs or the stock market.
What remains will go to pay the Expenses / Expenses that you can already identify at least by macro-categories in your map.
For example, I have indicated the most significant expense I incur, namely the mortgage.
Having identified it reminds me that reducing that expense, by hypothetically resorting to a subrogation, will allow me to free up resources.
On the other hand, I did not represent one of the most important sources of expenditure for all of us, namely taxes.
I will immediately change the map because, even as an employee, careful tax management can bring enormous benefits.
In any case, if you are particularly good at acting on your expenses by generating savings, you can put the money back into circulation and preferably invest it in assets that generate further income.
How to draw your Financial Map?
To draw your Financial Map you will need paper, a pen, and some concentration.
You will have to identify your sources of income and your expenses and write down on a sheet of paper every single euro that goes in and out of your finances.
In the drawing I have shown above I have tried to represent my monthly income and expenses.
I drew it with google editor and it is just a first draft of my Financial Map.
I want to enrich it to make it a really useful tool for managing my personal finances.
The aspect that at the moment I found most useful was that of being able to automate some flows, imposing rules on me to respect for the future.
I was also able to divide the flows of the various managements by separating the main flow of income and expenses deriving from my work from the flow of income and expenses connected instead to the flows deriving from the investments or side projects that I carry out.
Conclusions
I never thought that designing your own financial flows could have any real use.
Instead, it is a very powerful tool to analyze, plan and manage your financial choices.
Understanding the inflows and outflows will allow you to make informed choices, set new rules, and change your financial choices.
It may also happen that you discover new forms of entry or focus on exit items that you will be able to reduce or even eliminate.
What are you waiting for?
Take a sheet of paper or any writing program and start drawing arrows and squares to enclose entries and exits.
You will discover a new world and in the end, you will have the impression that you have organized, managed, and automated all your financial choices.
By applying simple principles you can really improve your personal finances.
However, remember that the Financial Map is a living tool, to be updated regularly and to be monitored to understand if the flows flow according to our wishes.
Let me know if you will benefit from this activity!
