Last month, I introduced the "Financial Planning 101" series that will appear in Boom! during 2009. Each month we will focus on the basics of a different financial topic. The initial topic was about setting goals, which is definitely the first step in the financial planning process. This month we begin implementing those goals by getting a handle on cash flow.

Benjamin Franklin said, "A small leak can sink a great ship," and nowhere is this more true than in how we manage cash flow. The word most associated with this process is budgeting, but that sounds so restrictive, doesn’t it? Just thinking about budgeting makes most people feel like they are on a financial diet and the hunger pains and cravings for junk financial food immediately begin. So, instead of using the word budgeting, let’s call it a cash flow management plan — there, doesn’t that make you feel better?

It may help to think about this process not from the viewpoint of what you can’t do or spend, but instead look at it as simply a plan of how you want and need to spend your money that is aligned with your family goals.

You can develop your cash flow management plan very simply on a yellow pad, or use a spreadsheet or personal financial software program. There are many useful tools and templates available. Just type "budget template tools" into Google and you can find many helpful links. While I am an advocate for writing a budget down and being as detailed and precise as desired or needed, keep in mind one important point: Just developing your budget or painstakingly tracking every penny that you spend will not get you where you want to go unless your plan matches your goals and you are able to defer short-term gratification in order to accomplish your long-term goals.

In developing a cash flow management plan, you need to identify your monthly income and expenditures. If you are a salaried employee, then your income is regular and predictable. However, if you are self-employed or if your income varies throughout the year (e.g. sales commissions), then you will need to average the expected annual income into a monthly amount. Similarly, most expenses may be monthly, but some that are paid annually, semi-annually, or quarterly (e.g. property taxes, insurance premiums, vacations, etc.) will need to be reflected as estimated monthly amounts. If you are budgeting each month for expenses that only occur once or twice a year, you will be able to save the money for those non-monthly expenses and have it on hand when it is time to actually pay it.

You incorporate your short and long-term goals into this cash management plan by determining how much money you need to be saving and investing each month in order to accomplish the goal. You will need to take into account when you want to accomplish the goal (buy a car in three years or retire in thirty years); what future funds you need at that time; and also estimate what you might earn on the money you are savings towards that goal. This sounds complicated, and in many cases it is, but there are many excellent financial calculators on the Web or in financial software to help with this task.

What if your income is insufficient to meet your monthly expenses and also provide funding for your short and long-term goals? Welcome to the club — this is a typical result for most of us. Now comes the more painful process.

First, is there a way to increase your income — a higher paying job, a spouse going back to work, or starting a business? This may be a solution, but consider the costs associated with these alternatives and the impact on your time, energy and family.

What about reducing some expenses? Some expenses may be impossible to change in the short-term, but discretionary expenses such as entertainment, vacations, clothing purchases, etc. are easier to adjust. Also, even expenses that you can’t change in the short-term, such as your mortgage or commuting costs, are ultimately flexible once you lengthen your time horizon and consider how they fit into your long-term goals.

Finally, we all have more goals than we do time or money to accomplish. Ultimately, you will have to determine which of your competing goals are most important and focus on those.