Budget Check & Cash Flow Update - February 2021
|Budget Check & Cash Flow Update - February 2021|
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 February was good even it was a the lowest it's been over the last six months. Total income from all sources came to $5,357.60 for the month which is well below the TTM average of $7,001.60 although that average does include the sizable tax refund from last year and the unexpected stimulus checks. The bulk of my income, ~89%, came from my day job, le sigh; although that should come as no surprise since we're still in the accumulation phase. Dividends were the next largest income source at 6% with interest and writing accounting for the remaining 5%.
Total expenses for February dropped significantly without the property tax bill overhang and came in lower than they had in quite some time. February's expenses came to $3,864.58 which includes the additional $1,503.46 of additional debt payments on my car loan which is now thankfully gone. The TTM average total expenses sits at $4,420.71.
Looking at just core expenses February's total was $1,899.81 which was a significant decline from January and below the TTM average which is all I can really ask for. The TTM average core expenses now sit at $2,803.66.
For the month we ended up with a net positive cash flow of $1,483.02 when looking at all income sources. Based on just work income, but including all expenses, the net cash flow came to $902.83.
Our savings rate from all income sources came to 28% while our savings rate from work income alone was 19%.
*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 7% 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 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 as post-tax income only from my work and core expenses. Think of it more like a free cash flow for a business.
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.
I believe this gives a better idea of our "free" cash flow from "normal operations" each month that can/will be used for debt reduction, saving and investing.
My net work cash flow rebounded sharply to +$2,867.60. The 12-month average is pretty strong at $2,603.68 and if we can maintain those numbers moving forward I'll be quite happy.
Non-Work Cash Flow
Passive income for February totaled $334.35 and covered 17.6% of core expenses. Meanwhile, non-work income totaled $590.19 and covered 31.1% of core expenses for February.
Now that the loan on my car is paid off that frees up a good chunk of cash flow each month. Over the last year we funneled $16.9k towards the debt which moving forward can now be put to much better uses.
Assuming income and expenses are roughly in line with the last 12 months we're looking at potentially having around $2,800 per month to start pouring into investments or other opportunities, one being the possible purchase of some land.