Budget Check & Cash Flow Update - March 2020

Budget Check & Cash Flow Update - March 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 March came in at $7,042.23 which is below the TTM average of $7,920.05.  The bulk of my income, ~82%, came from my day job, le sigh; although that should come as no surprise since we're still in the accumulation phase.  Approximately 17% came from dividends since March was a big payout month, and 0.5% from interest on cash in my savings accounts.  Unfortunately my side hustle brought in 0% for March.

Monthly Income Breakdown - March 2020

Total expenses for March saw a slight dip from February to $4,234.14.   The TTM average for our total expenses now sits at $4,968.37 and dipped under $5,000 for the first time in a very long time.  

Looking at just core expenses, March's total came to $3,263.22.  While that's higher than I'd like it's still trending in the right direction coming in ~$300 lower than the TTM average.

For the month we ended up with a net positive cash flow of $2,808.09 when looking at all income sources.  Based on just work income, but including all expenses, the net positive cash flow came to $1,524.46.

Our savings rate from all income sources came to 40% while our savings rate from work income alone was 27%.  The savings rate calculations are based off work income only and all expenses.

Cash Flow Check In March 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.

Net Work Cash Flow March 2020

My net work cash flow came in lighter than I'd have liked, but overall it was still solid at $2,535.38.  You won't hear me complaining about that at all given the big trade-off of being home every day even if it means less income.  Our 6-month moving average is for our net work cash flow is holding strong and if we can keep this up then we'll be back to regular investing soon.  The 6-month moving average for our net work cash flow comes to $3,336.06.

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 and non-work income for March both totaled $1,243.63 and covered 38.1% of core expenses.  





Conclusion

March was a good month as far as income and expenses go even if both came in on the wrong side of where I'd like them to be.  On the income side especially I can't complain because I was home almost every day in March while working in our remote ops that we're trying to get kickstarted.  It's still not ideal since it's 12 hour work days, but it's much better than 12 hour work days and not being able to be home each day.

Given the large uncertainties around what the economy is going to look like as we all adjust to the new reality of COVID-19.  Add on top of that the unknowns surrounding my day job in the O&G industry and well, I'd much rather prioritize building cash than accelerated debt payoff or investing.  Of course this is all the more reason to work on building up additional income streams.

My plan is to try and reduce expenses further because I know there's still room to trim it back without any noticeable change to our lifestyle.  Every $100 per month of expenses is equivalent to an additional $40,000 invested at a 3% yield.  I would be there's a pretty easy $100-$300 that could be cut without us missing a beat, but it just requires putting in the work.

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What are you doing to improve your cash flow situation?  Are you working on reducing expenses or increasing income?  Any concerns regarding your work situation due to the corona virus slow down and possibly prolonged recession?