What is a Cash Flow Projection and how will it affect your finances? (2024)

Maybe regarding your finances as a student, you are managing to save and control spending. It is also possible that in the future, you are planning to have your own business or manage your personal finances well. In all these cases, there are some concepts such as cash flow projection that you should keep in mind.

Although it is a concept that is not as well known as other basic elements of personal finance, it is, without a doubt, something you should consider. Mastering a cash flow projection will help you in many ways: mainly that it will always allow you to control the state of your accounts better. But, as you will see, there are many more elements of improvement when applying this tool.

What is cash flow projection?

There are many concepts applied to finance that get mixed up. For this reason, you will see that sometimes there are different definitions or applications of the same idea. That is not a cause for concern; you need to know how to apply the one that best suits you.

When we talk about a cash flow projection, we must differentiate it from something that is sometimes confusing: the cash flow forecast. These two are not the same; there is an important difference.

The main difference has to do with the fact that the actual cash flow marks a forecast. However, the hypothetical expense, i.e., the estimate, keeps a projection. As you can see, these are subtle differences, but they are important.

However, in many cases, they will go hand in hand. Think of forecasts and cash flow projections as being made at any time or accounting period. For example, you may perform these operations every week when you start a business during the first few years.

Why use a cash flow projection?

There are many reasons why a cash flow projection can be very effective. In the case of companies, this is beyond doubt. Through the cash flow projection (first forecast), it is possible to improve aspects such as expense planning. That, in turn, will make it possible to refine cash balance forecasts in the immediate future.

However, it is also interesting when applied to your student finances. Think of it as a way to keep a good perspective on where your finances are going. That is much more useful than many people think. It allows you to manage your day-to-day spending much better, knowing how far you can go and how you can do it.

Usually, a positive cash flow will indicate that your balance of expenses and income is positive: spending less than you earn. However, a negative cash flow is the opposite: the relationship between your costs and revenue is negative, and you spend more than you should.

Not valuing a cash flow projection as a savings or profitability forecast would be best. That would be a later step. In this case, you are looking to understand the balance between what you earn and what you spend. This way, you can determine how much is left over and how it influences your overall finances.

What are the benefits of a cash flow projection?

Actually, throughout the article, we have already told you some benefits. As you have seen, this perfectly applies to business and personal finances. In the case of student finance, it can be especially relevant when you need to keep a close eye on where your money is going in the coming months.

First, the main benefit is that you will better understand the right and wrong aspects of managing the economy. The clearer the picture you can get of the money coming in and going out, the easier it will be to spot inappropriate outflows.

Another important aspect has to do with expense control. If you can detect inadequate cash outflows, you can also protect liquidity by optimizing spending. That is part of a very important financial exercise: the ability to create a good budget and adjust it to your economic reality.

Of course, another relevant aspect is the possibility that a cash flow projection offers when generating strategies with your money. Understanding your financial status and its prediction makes it much easier to make decisions that have to do with appropriate business.

As usual, when we talk about finances, projection, forecasting, and control are basic elements that always have to do with good management and financial success. It doesn’t matter if we are talking about personal or business finances.