Cash Flow
Definition
The net amount of money flowing in and out of your accounts over a period. Positive cash flow means income exceeds expenses; negative cash flow means you're spending more than you earn.
Cash flow is the most fundamental personal finance metric — it determines whether you're building wealth or accumulating debt. Positive cash flow (income > expenses) provides money for savings, investing, and debt reduction. Negative cash flow (expenses > income) depletes savings and creates debt.
Monthly cash flow analysis reveals your financial reality more honestly than net worth snapshots. You could have a high net worth (home equity, retirement accounts) but negative monthly cash flow — spending more than you earn each month and slowly draining liquid savings. Conversely, modest net worth with strong positive cash flow indicates healthy financial momentum.
Cash flow has two levers: income and expenses. Increasing income (raises, side income, career changes) and reducing expenses (cutting subscriptions, downsizing, eliminating waste) both improve cash flow. Most people focus on cutting expenses, but increasing income often has higher leverage — there's a floor to how much you can cut but no ceiling on earning.
For rental property investors, cash flow is the primary operating metric. A rental property's cash flow is: rental income minus mortgage payment, taxes, insurance, maintenance, vacancy allowance, and property management. Properties with positive cash flow generate immediate income; appreciation is a secondary benefit.
Tracking cash flow requires monitoring all income sources and all expense categories over time. Irregular expenses (annual insurance premiums, holiday spending, car repairs) can create false impressions of monthly cash flow. Use 3-month or 6-month averages to smooth out irregular items and get an accurate picture.
Where this appears in Clarity
Clarity automatically tracks and calculates these concepts across your connected accounts.
Related Terms
Frequently Asked Questions
How do I calculate my monthly cash flow?
Add all income sources (salary, side income, investment income, rental income). Subtract all expenses (fixed and variable). The difference is your cash flow. Use 3-6 month averages to account for irregular expenses. Your bank statements provide all the raw data needed.
What's a good cash flow margin?
Saving 15-20% of gross income indicates healthy cash flow. Higher is better for accelerating goals. Even 5-10% is positive if you're working on debt payoff. Negative cash flow requires immediate attention — either increase income or reduce expenses. Zero cash flow means you're treading water.