Budget Check & Cash Flow Update - January 2020

Budget Check & Cash Flow Update - January 2020

The saying goes that cash is king.  While that's true, a more accurate saying when it comes to finances is that CASH FLOW is king.  Whether you're retired, still working or just starting out the only way you can improve your financial house is to have positive cash flow.  

If you're in the accumulation phase then that positive cash flow allows you to save and invest to build up your future cash flow.  If you're already retired, or FIREd, then congratulations because I'm sure your cash flow is well above what you need.


When it comes to personal finance it's rather simple: income - expenses = savings and savings x investing x time = financial independence.  There's obviously two main levers there and while we'd all like to increase our income, many times reducing expenses is some of the low hanging fruit that you can go after to increase your savings.

Budget Check

Total income for January came in at $7,879.58 which was slightly below the TTM average.  The bulk of my income, ~92.1%, came from my day job, le sigh; although that should come as no surprise since we're still in the accumulation phase.  Approximately 6.1% came from dividends, 0.5% from interest on cash in my savings accounts and 1.4% from cash back from my credit card spending.

Monthly Income Breakdown - January 2020

Total expenses for January saw a much welcomed decline from December's property tax induced total and came in at $3,679.97.  I'd still like to get that number lower and am working on doing so; however, I'm not too upset with it since it was significantly below our TTM average of $5,011.73.  

Looking at just core expenses, January's total came to $2,901.78.  The TTM average is $3,687.31 for core expenses.

All told we ended up with a net positive cash flow of $4,199.61 when looking at all income sources.  Using just work income, but including all expenses, I had a net positive cash flow of $3,574.04.

Our savings rate from all income sources came to 53% while our savings rate from work income alone was 49%.  

Cash Flow Check In January 2020

*A few notes about the cash flow check in.  All income is only income that I receive and does not include my wife's income likewise for the expenses.  We've found it's easiest for us to just keep separate accounts since I'm gone most of the time for work.  Also, pre-tax withholding for the 401k (I currently withhold 6% in order to get the full 5% employer match) and the ESPP through my employer (4% post tax withholding) are not included in the above savings amount.  

Net Work Cash Flow

While my net cash flow from above includes all income and all expenses, I wanted to get a more granular look at the cash flow that is available each month.  So I started calculating my Net Work Cash Flow which is calculated at post-tax income only from my work and core expenses.  

The above might be the true cash flow each month; however, it's not really representative of our "free cash flow" each month.  The idea is that all other income sources outside of work income are already going directly into savings or investing or in the case of dividends remaining in the brokerage account.  On the expense side the majority of our expenses fall into the core side and most of the other expenses are extra debt payments rather than further discretionary spending.

Moving forward, I believe this gives a better idea of our cash flow each month that can/will be used for debt reduction, saving and investing.

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Our net work cash flow had a nice rebound from January's dip into the red due to the property tax bill.  January's net work cash flow came to $4,352.23 and our 6-month moving average is $3,384.72.

Non-Work Cash Flow

Each month I like to examine the state of our non-work cash flow.  Since our goal is to become financially independent the monthly cash flow has to come from somewhere in order to cover our expenses.  I break our non-work cash flow into 2 categories: (1) Passive Income: dividends from taxable accounts and interest, and (2) Non-Work Income: all income from outside of my day job.

Passive income for January totaled $515.57 and covered 18% of core expenses.  Non-Work Income totaled $625.57 and covered 29% of core expenses.  





Conclusion

January was a nice rebound to for my monthly cash flow especially after the disappointing December results.  Income and expenses were all in line with what I've averaged and core expenses after showed a slight improvement.

I believe there's still plenty of fat to cut from my spending mainly in the food and insurance areas.  

Our focus is likely to shift again in 2020, but it will be for the better.  It might mean less investable cash, but the improvements to just about everything else will far outweigh that setback.  For the time being stockpiling cash will move to the top of our priority list, but we'll still likely invest a little bit here and there each month.

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What are you doing to improve your cash flow situation?  Are you working on reducing expenses or increasing income?