Understanding cash flow is essential for anyone aiming to achieve financial freedom through effective budgeting techniques, such as the envelope-based system. Cash flow refers to the movement of money into and out of your financial accounts over a specific period. It encompasses all income sources, such as salaries, bonuses, and investments, as well as all expenses, including fixed costs like rent and variable costs like groceries. By grasping how cash flow works, individuals can gain insight into their financial habits and make informed decisions regarding their spending and saving.