Cash flow is money coming in minus money going out during a set period.
What it means
Income creates cash coming in. Bills, taxes, debt payments, savings, and purchases send cash out. The timing matters as much as the total.
Cash flow is not the same as net worth. A person can own valuable property and still have trouble paying this month's bills.
A simple example
A rental property brings in $2,500 a month. The mortgage, taxes, insurance, routine repairs, management, and expected empty months average $2,100. The rough monthly cash flow is $400—not the full $2,500 rent payment.
Now add a plan to set aside $6,000 a year for a future roof and other large repairs. That reserve equals $500 a month, which turns the apparent $400 surplus into a $100 shortfall. The property may still build wealth through loan paydown or rising value, but it does not currently produce spendable cash. Cash flow asks what actually comes in and goes out, including costs that do not arrive every month.
What people often miss
Irregular bills can make a good month look better than the full year. Set aside money for repairs, taxes, and other costs that do not arrive monthly.
Retirement planning is largely a cash-flow problem: which income or account pays each bill, and when?
Three questions worth asking
- What comes in after taxes and costs?
- Which bills are irregular?
- What changes when work pay ends?
Checked against primary sources
This explanation was checked against the sources below. Rules and limits can change, so check the source before making a decision.
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