Budget Check & Cash Flow Update - May 2020
|Budget Check & Cash Flow Update - May 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.
Total income for May came in at $7,669.61 which is just below the TTM average of $8,020.43. The bulk of my income, ~92%, came from my day job, le sigh; although that should come as no surprise since we're still in the accumulation phase. Approximately 5% came from dividends, 0.5% from interest on cash in my savings accounts and the remaining 2.5% from my side hustle.
Total expenses for May crept higher to $3,640.13; however, that was entirely due to the extra debt payments we made on the car loan. Despite the rise from last month that's still well off the 12-month average of $4,876.54.
Looking at just core expenses, May's total came to $2,085.69 which is well below the TTM average of $3,496.67. I'm really excited and encouraged by the expenses numbers of the last few months and honestly have no clue how expenses were as high as they were before I was working home because it definitely doesn't feel too different.
For the month we ended up with a net positive cash flow of $4,029.48 when looking at all income sources. Based on just work income, but including all expenses, the net positive cash flow came to $3,445.68.
Our savings rate from all income sources came to 53% while our savings rate from work income alone was 49%. The savings rate calculations are based off work income only and all expenses.
*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.
My net work cash flow continued to be quite strong in May with $5,000.12. What's really crazy is that despite the reduction in income due to my new work role, my net work cash flow is still in line with the levels when my income was higher due to much lower expenses. Our 6-month moving average 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 $2,682.96.
Non-Work Cash Flow
Passive income for May totaled $399.83 and covered 19.2% of core expenses. Meanwhile, non-work income totaled $583.80 and covered 28.0% of core expenses for May.
While I know that many people have been effected by COVID and the ensuing economic lockdown, we have luckily just been inconvenienced. That doesn't mean we're not being effected by it though as the O&G sector especially the upstream side is seeing massive disruption. There's been massive layoffs throughout the industry and a lot of good people that I know that have lost their jobs.
That being said, I'm quite encouraged by the reduction in spending that was seen in April. Especially since that's come at a time when I've been home the hole time in a new job role. I have to admit that I was a bit worried about the possibility of having to find a new job since the required income was higher than I'd have liked; however, without any real changes to our spending other than me being at home there's been no noticeable change to the quality of our lifestyle with the reduced spending.
We're at the point where I think we need to focus more on debt reduction rather than continuing to build up our cash. The rough plan going forward will probably look something along the lines of whatever savings I have each month being split to 1/3 cash, 1/3 additional debt reduction, 1/3 brokerage account. Although that's a plan in progress at the moment.
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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?