REPORTS - THE CASH CURVE
What the Cash Curve does for you
The Cash Curve allows you to use your budget to see how you are financially progressing, and to identify areas of possible cash-flow crisis in the next 24 months.
Armed with this information you can modify your budget, re-schedule large periodic payments, and provide for all contingencies. The Cash Curve will also tell you just how much free cash you have at any time to meet unforeseen eventualities.
Essentially the Cash Curve takes your budget (and estimates of future contingencies), calculates the difference between budgeted income and expenses for each month, and adds these monthly values to the balances of selected bank, credit card and loan accounts at the start of the current month.
Successful use of the Cash Curve requires that your Accounts are correct at the start of the current month and that your budgets are as accurate as possible.
ACCOUNT REVIEW
Shows the status of your Bank, Credit Card and Loan accounts at the start of the current month. The Cash Curve is viewable for 12 or 24 months from the start of the current month.
An accurate Cash Curve requires that these accounts are fully imported and categorised to the end of the previous month. The balance should be correct at that time. You will be alerted in section “Require You Correct” of what you need to do.
Note that you need not include all accounts in your Cash Curve.
You will always include transactional banking accounts and credit card accounts.
You may chose to exclude the following:
- Term deposit or other investment type bank accounts.
These may be invested on long terms and not available (without penalty or loss of interest) for premature withdrawal. Alternatively, you may wish certain deposit type accounts to remain untouched from normal day-to-day bill paying. - Loans. If your home loan has a linked credit card facility this would probably be included in its own right. If your loan has some accessible “equity” you may chose to include.
- Note that the Cash Curve currently makes no provision to include Other Asset and Other Liability account types.
Once all Accounts are adjusted and their inclusion in the Cash Curve decided, three totals are available as the basis of all calculations. The difference between budgeted income and expenses for each month are simply added progressively to each of these starting values.
- Reserve if pay-off & cancel all cards:
We don’t suggest you cut up your cards - it might be best to keep them and pay off your debts in full monthly.
- Reserve if don’t extend card debt:
- Reserve if prepared to max all cards:
BUDGET REVIEW
The key to an accurate Cash Curve is an accurate and detailed budget.
The best way to form a budget is to import your statements from as far back as possible, categorise these and start your budgets from your first imports. This means that you can be confident on the accuracy of your recurrent budgeted expenses. Of course there are still those 6-monthly and yearly expenses like rates, insurances etc. that you must remember and include.
The Budget Review tab provides a checklist that you have not missed providing a budget for categories.
Any categories that have not been included or are ’suspect’ will be marked with a 
. You should fix any problems to ensure as accurate a CashCurve as possible.
You also have access to: Budget vs. Actual, Graph & Settings from here.
Your budget may need to include categories not shown here e.g. yearly insurances not included in your imports.
An accurate Cash Curve requires an accurate and complete budget.
FUTURE PROVISIONS
To include an income or expense item in a budget requires that you know that it will definitely occur, and furthermore, you must know the month in which the item will occur. Even though you may not know the exact value of the item, you can include a “best guess” of its cost.
Provisions are needed to cover those costs you know will eventually occur e.g. car maintenance & you know that in the future you are going to need to purchase new tyres or a new car battery, but you don’t know when. Regardless, you still want to be prepared for these costs.
These are entered with the Future Provisions module. These provisions are added to your budgeted expenses and give a realistic but “worst case” view of your cash requirements. If you have accurately entered your budget and future provision the results of your Cash Curve are more likely to be accurate.
THE CASH CURVE
The Curves & Future Provisions
There are three curves available in the Cash Curve. The options for these relate to your use of credit and your availability of credit. They are:
Cards Maxed Out:
Usually shows higher than the other curves. This line does not represent what it will be like if you have maxed out your credit cards, but rather the amount available to you if you are willing to max your cards. Having your cards so that you have the possibility of using them to their full potential provides you with extra money (or liquidity) should you need it.
Cards No Change:
Represents your level of liquidity if there is no change to your credit cards.
Cards Cancelled:
Indicates your level of available funds (liquidity) should you cancel your credit cards.
In this example 2 of the 3 curves are displayed. Curves can be turned on and off using the Legend.
These lines all indicate your projected liquidity. When you have set items in the “Future Provisions” module they will be represented here, along with all of your budget items.
Extra monthly savings
See how extra monthly savings can alter the results of your Cash Curve.
When you enter an extra savings value into “Saving an extra $ _____ /month”, as shown in this example, extra lines will appear to accommodate these extra savings.
This can be useful to get an idea of just how much you need to be saving every month to avoid running into financial troubles.
View Your Budget Profiles
You can view your budget profiles directly from the Cash Curve graph.
Clicking on one of the points on the graph will display your projected budget profile for that month. This allows you to see why one or more months appear significantly higher or lower by analysing your budgeted income & expenses for these months.
Seeing which months you will need more for gives you a better opportunity to prepare for them.
AN EXAMPLE OF HOW THE CASH CURVE CAN HELP YOU
The Cash Curve is essentially a graph of expected future available cash assets you have to meet expenses.
It does not normally include assets like real estate or shares since these assets are not usually quickly sold - or if they are it may involve a significant discount in price and sometimes unwanted taxation consequences.
Cash Curve results are usually based on your bank, credit cards, loans and similar accounts that can provide cash within (typically) 60 days.
A simple example will hopefully illustrate the principles.
Suppose that at the start of Jan 2007 your position is as follows:
Available money in your bank accounts - $10,000
Total owing on credit cards - $5,000
Approved limits on your credit cards - $15,000
Your true wealth is $5,000 (what remains from the $10,000 when you repay your credit cards). This is the maximum you can spend without incurring extra debt, or eating into your savings. You can spend to $20,000 - however at this time your credit cards will be totally “maxed ” and your savings annihilated.
Starting from the start of Jan 2007 the Cash Curve totals all of your budgeted income and expenses for each month. It also adjusts for cost predictions for special events (like holidays) as calculated within the Future Provisions module.
Suppose your budget indicates that your monthly expenses exceed your income by $500 per month. Clearly, if this pattern continues, your net worth will be reduced from $5,000 to zero within 10 months.
However, there are other scenarios to consider - after 2 months your net worth is now $4,000. Suppose your car breaks down, and will require $4,500 to fix. You are uninsured. Clearly you can’t pay the bill without some financial adjustment.
Of course this example is simplistic. Some months will have you saving money, whilst other months may be horrors, complete with a significant destruction of savings.
Nevertheless the conclusion is the same - if your Cash Curve is increasing before big unforseen expenses occur you will be OK. If you are not making adequate provisions you will not be able to meet these unforseen expenses without some major re-adjustment in your finances.
Example 1. Downward Cash Curve
Caution is needed. You really need to check your budget now and ensure that no items are missing - if they are add them. Don’t be tempted to ignore them. Remember you can’t stop the bills coming simply by changing your budget - you have to make some meaningful adjustment (and your budget helps you to do this).
The time you have the most flexibility is NOW - don’t waste it.
Example 2. Upward Cash Curve
Congratulations, you appear to be heading in the right direction. Before congratulating yourself carefully check that your budgets & future provisions are correct.
Note that using the Cash Curve to profit depends on:
- An accurate budget of future income and expenses.
Also note that past spending is irrelevant (other than determining how much money you have now). The better your budget, the better you can plan your financial future. If you have taken out interest-free loans your budget MUST include these - the penalties for missing even one of these payments is often crippling.
- As good an estimate of Future Provisions as you can make.
- Not missing anything from your budget�
It is a well known by people who run major construction projects that a secret to success is not to miss an expense item and include it at your best guess (if you don’t know the exact cost). It is surprising how accurate the total cost is even if the individual items may vary significantly from your guess.
