Cash flow

Cash flow is the household's one honest monthly number. Income counts at take-home, every purchase counts on the day it happened whether it was on a card or from checking, and the movements between your own accounts, a transfer to savings or a payment to a credit card, count as neither, because they move money rather than spend it. What is left is the amount the month added to your net worth or took away from it. A budget is the plan for a month; cash flow is the record of what the month actually did.

In a sentence

• "Our cash flow was $680 last month, and $400 of it went to savings."
• "December's cash flow went negative, and January's card balance shows exactly how far."
• "A budget plans the month in advance. Cash flow reports on it afterward."

How it's calculated

Cash flow = money in − money out

Three rules decide what goes on each side.

1. Count income at take-home, the amount that reached the account, and count side income after the share you owe in tax.
2. Count a purchase on the day it happened, whether it was paid from checking or put on a card. The card's statement payment is not counted again; counting both doubles the month's spending.
3. Leave out every transfer between your own accounts. A transfer to savings is where a positive cash flow goes, not spending; a card payment settles purchases that were already counted.

An example

The $400 that moved to savings and the $900 that paid the credit card are not in the table. The card's purchases were counted on their own dates, in groceries, dining and shopping, and the transfer is where $400 of the $680 went. The other $280 stayed in checking, where it reads as a slightly higher balance rather than as a saving, which is why the figure has to be computed rather than read off a statement.

Why it matters

Cash flow is the only part of net worth you control every month. Investment returns rise and fall on their own; the surplus between income and spending is the household's doing, and it is where every savings transfer, every extra debt payment and every emergency fund contribution comes from. A month with negative cash flow is a month that borrowed, from a card or from savings, whether or not it felt that way. The figure also explains the feeling of being broke on a good income: a positive cash flow that never reaches a balance usually went to a card payment for last month's spending.

Cash flow versus a budget

A budget is a plan for a month that has not happened; cash flow is the measurement of one that has. The budget says what each category may take, and the cash flow figure says whether the month as a whole came out ahead, which the category totals alone cannot. Read together, a budget that was kept and a cash flow that was negative means the budget added up to more than the income. See Cash flow versus budget.

Common questions

Is cash flow the same as income? No. Income is one side of the subtraction. A household with $4,400 of income and $4,600 of spending has an income and a negative cash flow at the same time.

Does a credit card purchase count when I buy or when I pay the card? When you buy. The purchase is the spending, on the day it happened; the payment weeks later moves money from checking to the card and is left out. Counting the payment instead delays every purchase by a month, and counting both doubles it. See How to stop credit card payments and transfers from double-counting.

Why is my cash flow positive when my bank balance never grows? Because the surplus went somewhere the checking balance does not show: into savings, into a falling card balance, or into extra loan principal. All three raise net worth. If none of them moved either, a purchase or a transfer is probably being counted on the wrong side. See Why you can have positive cash flow and still feel broke.

Should a transfer to savings count as spending? No. It is where the cash flow went, and counting it as spending hides the saving. The same is true of an extra payment on a loan: the principal portion is money kept.

How often should I calculate it? Monthly, because bills and paychecks run on monthly cycles, and quarterly for the trend, because an annual premium or a third paycheck swings a single month.

Go deeper

• How to calculate your monthly cash flow, with a worked example runs the subtraction step by step.
• How to forecast your cash flow for the next thirty days turns the same figure forward, from the bills and paychecks still to come.
• How to calculate your savings rate divides the kept money by the income it came from.

Where it shows up in Zypper

Zypper's cash flow page is this subtraction, kept current. It charts income against spending over any period you choose, this month, last quarter, or the year, and groups the difference by category, by category group, or by merchant, with each row opening into its own chart and the transactions behind it. Movements between your own accounts, a card payment or a transfer to savings, do not count as income or spending by default, because Zypper links the two sides of a transfer as one movement, and the page's settings let you choose how transfers are treated. See Cash flow and Splitting and linking transactions for the details, or get started with Zypper to see this month's figure.