How to calculate your monthly cash flow, with a worked example

Monthly cash flow is one subtraction: everything that came in during the month minus everything that went out. Count income at take-home, count every purchase on the day it happened whether it was on a card or from checking, and leave out the transfers between your own accounts and the card payments, which move money rather than spend it. A positive result is money the household kept this month; a negative one is money it borrowed or drew from savings. The worked example nets $4,400 in against $3,830 out, a cash flow of $570, of which $300 moved to savings and $270 stayed in checking.

What goes in and what stays out

The two rules that matter most are the card and the transfer. A card purchase is out on the day it is made, and the statement payment is not out again; counting both doubles the month's spending. A transfer to savings is not out at all; it is where a positive cash flow goes, and counting it as spending hides the saving.

Compute it in five steps

1. Add up the month's inflows: take-home pay from every paycheck that landed in the month, and side income after its tax share.
2. Add up the month's outflows from every account and card, with each purchase on its own date, and refunds subtracted.
3. Remove the transfers and the card payments from the outflows, and any transfers in from savings from the inflows.
4. Subtract outflows from inflows. That is the month's cash flow.
5. Reconcile it against the accounts. The cash flow should equal the change in checking plus the change in savings plus the change in the card balance, with the signs right. If it does not, a transfer or a card payment is still being counted.

A worked example

Inflows: two paychecks of $2,100 and $200 of side income after its tax share, $4,400 in all.

Cash flow is $4,400 minus $3,830, or $570. During the month $300 moved from checking to savings, which is not in the table; the household kept $570, of which $300 is now in savings and $270 is still in checking. The card statement of $640 paid on the 28th is also not in the table, because the $640 of purchases behind it were counted on their days, some of them in last month's table.

The reconciliation: checking rose by $270, savings rose by $300, and the card balance fell by whatever last month's purchases exceeded this month's; the first two add to $570, which matches.

Read the sign, then the trend

A positive month is money kept, whatever the savings balance did, because the transfer to savings is inside the cash flow rather than beside it. A negative month is money that came from somewhere: savings drawn down, a card balance grown, or a loan. One negative month is an event; three in a row is a household spending more than it earns, and the categories in the outflow table say where.

Track the figure monthly and read the trend. A cash flow that drifts from $570 to $200 over a year with the same income is $370 of monthly spending that grew without a decision, and the month-to-month comparison of the categories finds it; see How to compare spending from month to month fairly.

Cash flow is not the budget

The budget is the plan for the month; cash flow is what happened. A household can be under budget in every category and have negative cash flow, if the budget itself was set above the income, and it can be over in three categories with a strong positive cash flow, if the amounts were conservative. Cash flow answers whether the household is okay; the budget answers where to change something. See Cash flow versus budget, and which one tells you whether you're okay for the two questions side by side.

Common mistakes

• Counting the card payment as spending. Every card purchase is then counted twice, and the month reads worse by the whole statement.
• Counting the savings transfer as spending. The month reads worse by the amount saved, which is the opposite of what happened.
• Counting a transfer from savings as income. The month reads better by money that was already yours.
• Counting income at gross. Taxes and payroll deductions never reached the account; cash flow is about what did.
• Counting a refund as income. It reverses a purchase, in the purchase's category.
• Never reconciling. The account balances are the check, and a cash flow that does not match their change has a transfer hiding in it.

Common questions

What is monthly cash flow? Everything that came in during the month at take-home, minus everything that went out on the day it went out, with transfers between your own accounts and credit card payments left out. It is the month's result in one number: positive is kept, negative is borrowed or drawn from savings.

Is a credit card payment part of cash flow? No. The purchases on the card were counted when they happened, so the payment that settles them would count them twice. The payment is a transfer from checking to the card.

Does saving count as spending in cash flow? No. The transfer to savings is where a positive cash flow goes; the cash flow figure already includes it as money kept. Counting it as spending makes a saving month look like a break-even one.

What should my cash flow be? Positive, by an amount that matches your savings goals; the figure divided by income is the savings rate. There is no external right number, and a positive figure that is smaller than last year's with the same income is the one to look into.

How is cash flow different from net worth? Cash flow is the month's flow, in minus out. Net worth is the balance at a moment, everything owned minus everything owed. A positive cash flow raises net worth by roughly that amount each month, and net worth also moves with markets and home values that cash flow never sees.

How Zypper handles this

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, so you can see whether you are ahead or behind for any of them, and it 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. Every amount comes from your categorized transactions, so the categories in the table are the rows on the page. See Cash flow and Splitting and linking transactions for the details, or get started with Zypper to see this month's figure.