investing

6 financial formulas to help you succeed

Formula No. 1: Calculate your cash flow
Income – Expenses = Cash flow

This straightforward financial formula is key to your success.

Subtract your expenses from your income to get your cash flow. "This calculation is going to help you understand your true living expenses," Golden says.

A negative cash flow means you're spending more than you bring in. This may deplete your savings or increase your debt. A positive cash flow indicates that you're living within your means. If the result is a negative cash flow, you can take steps to reduce your expenses or seek additional sources of income.

"Knowing if there is potential leftover income could be helpful in terms of thinking about extra savings you can make to grow a nest egg," says Golden. "What I've come to discover is that people who do not have a good sense of their cash flow underestimate their ability to save."

To get the most accurate picture of your expenses, calculate your cash flow over a number of months and don't forget to include occasional expenses such as property taxes, auto insurance and vacations, as well as unscheduled (but not unexpected) expenses like that co-pay for the doctor or that shower present for your co-worker.

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