Budget Check & Cash Flow Update - July 2021
|Budget Check & Cash Flow Update - July 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 July was good at $6,645.28 which was slightly lower than the TTM average that currently sits at $6,803.43. Although the TTM average for total income does include the COVID stimulus payments made in 2020 which artificially inflate what I expect to be normalized income. The bulk of my income, ~84%, 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 8%.
Total expenses for July increased significantly as we took a vacation towards the end of the month. July's expenses came to $5,390.35. The TTM average total expenses now sits at $4,523.09. That's much higher than I'd like, but overall I can't really complain.
Looking at just core expenses July's total was $3,327.67 which is significantly higher than where I'd like it to be. The TTM average core expenses sit at $2,931.43 although I'd like to get that back down closer to $2,500 or so.
For the month we ended up with a net positive cash flow of $1,254.93 when looking at all income sources. Based on just work income, but including all expenses, the net cash flow came to $172.44.
Our savings rate from all income sources came to 19% while our savings rate from work income alone was 3%.
*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 +$2,235.12 thanks to my return to work after the birth of our 3rd daughter. The 12-month average is pretty strong at $2,198.60 and if we can maintain those numbers moving forward I'll be quite happy.
Non-Work Cash Flow
Passive income for July totaled $514.49 and covered 15.5% of core expenses. Meanwhile, non-work income totaled $1,082.49 and covered 32.5% of core expenses for July.
We're back in full swing now with me back to work and summer winding down. That should help to decrease expenses and the income side should tick higher as well which is always a good combination.
Expenses have ticked higher likely due to a combination of inflation as well as being a bit lax on that side of the income statement. Adjusting to being a household of 4 was about survival, mentally not financially, for the first few months but we're starting to settle into a groove.
I'm pretty excited on the outlook for the rest of 2021 and expect to be able to invest around $2k+ per month before accounting for the dividends that are coming in. With 5 months to go in the year that's an additional $10k+ just from new savings which will definitely help out the portfolio and the future dividends.
That could change though as we're still looking for land and possibly building our house on it. We've changed directions a bit and instead of going for a large acreage amount we're looking more for a 1-2 acre lot in a neighborhood which is pretty common down here in Texas. There's still a lot of information I need to gather before we move forward with that but I'm pretty excited about the process even if there's no real timeline on it.
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Did you see an increase in expenses throughout the summer or were you able to keep things in line? What are you working on to increase your cash flow each month?