Budget Check & Cash Flow Update - December 2021
|Budget Check & Cash Flow Update - December 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 December was solid and came in at $7,799.06. That's slightly above the TTM average of $7,232.79. The bulk of my income, ~70%, came from my day job, le sigh; although that should come as no surprise since we're still in the accumulation phase. Dividends provided over $1,300 for the month.
Total expenses for December were a bit higher than I'd like, as always, but well below the TTM average. December's expenses were $3,244.14 with the TTM average dropping to $4,496.28.
Core expenses were about in line with what I would expect given that we didn't have the homeowners or car insurance to pay for during the month after paying the full premium during September. December's core expenses were just $2,510.08 and the TTM average is now $3,394.43.
For the month we ended up with a net positive cash flow of $4,554.92 when looking at all income sources. Based on just work income, but including all expenses, the net cash flow came to $2,242.21.
Our savings rate from all income sources came to 58% while our savings rate from work income alone was 41%. The savings rates are all based off of net take home pay and don't include the pre-tax savings towards my 401k or HSA or the post-tax ESPP withholding.
*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 8% 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 completely 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 continued to hang out at solid levels. For December my net work cash flow came to $2,976.27 and TTM average is $1,849.45.
Non-Work Cash Flow
Passive income for December totaled $1,322.06 and covered 52.7% of core expenses. Meanwhile, non-work income totaled $2,312.71 and covered 92.1% of core expenses for December. The non-work income does include the child credit pre-payments that will be coming to an end now in 2022. Excluding that payment non-work income was still $1746.71 and covered 69.6% of core expenses.
Overall our cash flow was pretty good for December although I of course wish the income was higher and expenses were lower. The lowest hanging fruit for reducing core expenses would be refinancing our mortgage which is something I've toyed with but not followed through on.
That might get remedied in 2022 as mortgage rates have started to rise some and honestly there's no reason not to do it. While our current mortgage interest rate is good, it's not great and we could likely lower our rate and in turn our monthly payment by roughly $100 - $200. Since that monthly savings would go straight towards investing it's something that we should take advantage of.
January looks to be an expensive month as we'll have our property tax payment to make so cash flow will be lighter than I'd like. However, since that's just one month a year and we should be able to cash flow a good chunk of it just through January's income I'm not that concerned.
Make sure you sign up to receive new posts to your email so you don't miss anything. And be sure to follow me on Twitter @JC_PIP to get up to the minute news of purchases for my portfolio or if you prefer Pinterest or Facebook I'm on there too.
How was your cash flow for the month? Do you have anything on tap that can increase your income or reduce your expenses?