Budget Check & Cash Flow Update - March 2021

Budget Check & Cash Flow Update - March 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.

Budget Check

Total income for March showed a nice rebound from February's dip.  Total income from all sources came to $6,978.36.  While that's a solid amount of income it is still below the TTM average of $7.387.83 which I expect will continue dropping over the year.  The bulk of my income, ~72%, 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 17% with interest and writing accounting for ~3% combined.  There was a large amount of other income during February which accounted for 8% of my income.

Total expenses for March continued to trend lower which is always good to see especially since that included ~$1,000 of extra expenses for a trip our family took during Spring Break.  In total I spent $3,501.52 during March which is well below the TTM average of $4.359.66.

Looking at just core expenses March's total was $2,428.86 which was a sizable jump from February, but still in line with my typical monthly core expenses.  The TTM average core expenses are $2.734.13.

For the month we ended up with a net positive cash flow of $3,476.84 when looking at all income sources.  Based on just work income, but including all expenses, the net cash flow came to $1,512.08.  

Our savings rate from all income sources came to 50% while our savings rate from work income alone was 30%.  

*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 was solid at $2,584.74.  The 12-month average is pretty strong at $2,999 and if we can maintain those numbers moving forward I'll be quite happy.   

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 March totaled $1,194.14 and covered 49.2% of core expenses.  Meanwhile, non-work income totaled $1,964.76 and covered 80.9% of core expenses for March.





Conclusion

Things are looking up from a cash flow perspective although the next couple months are likely to show significant declines in savings rates due to our child that should be born in early April.  That should just be a temporary dip as I take time off from work whenever the baby decides to come and 8 weeks of reduced pay is surely to put a dent in cash flow.  But I'm not concerned about that at all as time with the newborn is worth much more than a few extra months of our savings capabilities.

Assuming income and expenses are roughly in line with the last 12 months we're looking at potentially having around $2,500 to $2,800 per month to start pouring into investments or other opportunities, one being the possible purchase of some land.  

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What are you doing to improve your monthly cash flow?