Developing a plan to achieve your financial and retirement goals is no different than planning a trip or pursuing other goals. You have to know where you are now, before you can determine the best path to reach another destination.

In financial planning, that means knowing your current financial situation - having an accurate picture of your finances. Without an accurate picture, a financial plan is just a wish list. To develop this picture requires knowing how much you are bringing in each month, where it is being spent, and how much, if any, is left over for saving and investing.

A cash flow analysis provides this information and is a critical step in creating a successful financial plan.

The information you will need for the cash flow analysis will come from your personal financial records. Gather your records which include:

• Employment earnings statements or stubs
• Documents for all sources of income - wages or investment
• Banking, savings, and investment account statements
• Checkbook register
• Credit card statements
• All receipts and records of spending

Using the Cash Flow Analysis Worksheet, enter the income and expense items for several months. Keep in mind that the more months you analyze, the more accurate your financial picture will become. Six months will usually provide a realistic picture. Refer to Chapter 5 in Investing for Retirement - Surviving a Financial Tsunami for more details.

The most important item in your cash flow analysis is the amount of the average monthly surplus or deficit. This will answer the questions - "Are you spending more than you earn?", "Do you have money available for investing?", and "What items of spending surprised you?"

If you are running a deficit each month, you are either consuming your savings and investments, or accumulating debt. There are no alternatives. If you find yourself in this situation, take the time to develop a realistic budget that will force you into a positive cash flow each month.

It is important to develop your Cash Flow Analysis before creating a budget or investment plan.

Review Chapter 3 in Investing for Retirement - Surviving a Financial Tsunami.

Also, see Balance Sheet and Preparing a Budget.