Budget Check & Cash Flow Update - June 2020
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| Budget Check & Cash Flow Update - June 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 June came in at $6,747.85 which is well below the TTM average of $8,131.31. The bulk of my income, ~81%, 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 June is one of our higher paying months. Interest on our cash savings contributed another 0.5% and the remaining 1.1% came from cash back via my credit card.
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| Monthly Income Breakdown - June 2020 |
Total expenses for June came in at $3,314.29 although that included an extra $500 in debt payments that we made on the loan on my car. Overall I'm pretty happy though as June still showed a decline in total expenses compared to May and is well below the TTM average that now sits at $4,719.62.
Looking at just core expenses, June's total came to $2,314.29 which is well below the TTM average of $3,408.19. Since I've been working out of the office beginning this past March the core expenses TTM average has shed $285 with more declines in store. The run-rate core expenses starting for the April through June period is showing a $1,400+ per month decline. The best part about that is that there's no noticeable change to lifestyle.
For the month we ended up with a net positive cash flow of $3,433.56 when looking at all income sources. Based on just work income, but including all expenses, the net positive cash flow came to $2,179.89.
Our savings rate from all income sources came to 51% while our savings rate from work income alone was 40%. The savings rate calculations are based off work income only and all expenses.
Our savings rate from all income sources came to 51% while our savings rate from work income alone was 40%. The savings rate calculations are based off work income only and all expenses.
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| Cash Flow Check In June 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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| Net Work Cash Flow June 2020 |
My net work cash flow continued to be quite strong in June with $3,179.89. 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 $3,960.11.
Non-Work Cash Flow
Passive income for June totaled $1,178.67 and covered 50.9% of core expenses. Meanwhile, non-work income totaled $1,253.67 and covered 54.2% of core expenses for June.
Conclusion
Three full months in to my new job role and so far things are looking pretty good. While income has decreased some; our expenses have seen a huge decrease. That's led to a my core net from work income, i.e. a better view of my monthly free cash flow, hanging in at pre-job change levels.
The really big benefit to the expense decrease is that, aside from the raw savings ability hanging in there, is that my passive income is going a lot further for covering our core expenses. Over the last 3 months that's averaged just over 30% and for June we crossed 50% thanks to the big month of dividends.
Looking forward the plan for our monthly cash flow is probably going to fall into splitting our excess cash flow into roughly 1/3's between additional debt reduction, continuing to save up cash and what I'm most excited about is monthly contributions to the brokerage account. Although the additional cash savings transfers might slow down soon and be diverted to additional debt payments and/or the brokerage accounts. There's lots to think on over the coming weeks and months but needless to say I'm quite happy with how things are currently going.
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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?
One thing I’ve found is that having that well stocked emergency fund removes a lot of the worries that other people presumably have. We don’t have to worry about how to pay the bills or buy food etc if for whatever reason I stop getting paid, and it means we can remain calmer and not as stressed about the situation, financially at least.
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