Cash Flow

Think of cash flow like a bathtub: money flows in from the faucet (your income) and drains out through expenses. If the faucet runs faster than the drain, the tub fills up—that's positive cash flow. If the drain wins, you're slowly running dry.

Monthly cash flow tells you more about your financial health than a net worth snapshot alone. You could own a home and have a solid retirement account but still be spending more than you earn each month, quietly draining your savings. On the flip side, a modest net worth with strong positive cash flow means you're headed in the right direction.

You have two levers to pull: earn more or spend less. Most people default to cutting expenses, which helps—but there's a floor to how little you can spend. There's no ceiling on what you can earn, so boosting income (a raise, side gig, or career move) often has bigger upside.

For anyone looking at rental properties, cash flow is the headline number. It's rental income minus mortgage, taxes, insurance, maintenance, vacancy allowance, and management fees. Positive cash flow means the property pays you each month; appreciation is a bonus on top.

One tip: don't trust a single month's number. Irregular expenses—annual insurance premiums, holiday gifts, car repairs—can make any given month look better or worse than reality. Average your cash flow over 3-6 months for a picture you can actually rely on.