A budget is a sure-fire way to plan for where your money goes as you earn and seek to grow that money further. Yet, understanding cash flow is something many people don’t talk about and how it will impact their budget.

A budget has two core areas — income and expenses for a set period. The aim of any budget is for income to be greater than expenses, which should be in line with or below the projected amount. While a salary can be fixed or variable, it’s something that is expected to be received and forms the foundation of your income. Other items such as interest income, dividend income and royalty income are forms of income you should receive as well if you invest in financial securities or own intellectual property.

When it comes to expenses, there are essential and discretionary expenses. Essential expenses must always be paid first and might not have an extended window of say three to four weeks before payment is due. So, rent, utilities, loan payments, transport and so forth are expenses that must be paid with these generally being paid with cash up front. Some of these expenses are usually within a range based on experience, which means part of your income will always be allocated to these items first.

Other essential expenses such as groceries, insurance and relevant subscriptions are things which can be planned ahead through a sinking fund or doing an annual subscription versus paying monthly. If there is a house, car or something that requires maintenance, these expenses have to be factored into your budget for specific periods in the year, so they don’t surprise you.

Discretionary expenses ranging from entertainment, shopping and vacations are something nice to do, but not always necessary at certain times either. While some expenses might be essential for some people, it’s best to outline every expense one has in order to see where money goes every month. Budgeting for an emergency fund is also important in the event of an unexpected situation which can reduce your income or increase your expenses. One can also set aside funds for a particular item one wants to purchase, to build up one’s savings or invest as well.

While you will aim to always earn more than you spend, understanding when cash comes in and goes out is critical to any sound budget. So, you can budget for $250,000 in income for January with $220,000 in salary and the remaining $30,000 in the form of other income. If you only received $15,000 in other income for January and the other $15,000 in February, you only received $235,000 in income, but waiting on the other $15,000 which is a receivable to be credited to your bank account.

Understanding cash inflow impacts how you determine what you might spend your money on and at certain times of the month. This concept also applies to expenses as well since some expenses can be incurred in March but payable in April. If you receive a service on March 29, but it can be paid on April 11, then you would have something to pay at a future date, but the value of the expense would remain in your bank account. Thus, based on when cash comes into your bank account would likely influence how and when you pay certain expenses.

Some people use a credit card or payment plans to spread out expenses over a longer timeline than to pay everything upfront with cash. How does that work? If your credit card billing cycle is between August 10 – September 10, any settled expenses during that period which show up as the statement balance would have to be paid off by October 3. This means that one could park their cash in a high interest rate bank account, certificate of deposit (CD) or other financial opportunity and benefit from earning more money as a result of this approach. Once the statement balance is paid off in full, one would never pay a cent of interest or transaction fees while having their cash earn more in the interim.

With regards to payment plans, some commercial banks offer buy now pay later options on credit cards which allows someone to split up transactions over a longer time frame. Thus, a $90,000 expense could become a $31,000 expense for the next three months and so on. Some furniture stores and other businesses offer payment plans as well which results in a higher cost for the overall item than if one had paid with cash for the transaction. However, if one can earn more with that cash in the interim than the additional interest or cost, then it works out in your favour especially since cash is limited in different circumstances but can be used to earn more money.

These approaches to pushing expenses and cash outflow to later dates improve one’s overall cash flow and budget planning as a savvy consumer can plan more effectively how they will navigate their life.