Kyith wrote a good piece of information this morning (Link Here) regarding segregating the difference between balance sheet and cash flow/cash and connecting the dots between how we look at company the same way we tend to shape our very own lifestyle and finances.
After reading the article, I am tempted to look deeper into my own cashflow because I don’t track my income and expenses very closely, let alone cashflow. I feel like I am at the stage where such tracking to the cents does not give me much marginal benefit compared to the time I’m spending them on to track. I get the idea what I needed to do on the most basic level of finances, i.e to spend less than whatever I earn.
The idea at first was to leave open the approach in that manner to allow myself room to endeavor around the income and expenses amount. If I need to increase my expenses by 10%, I would first find ways to increase my income by 10% or at least to that range. If my income was cut by 10%, I needed to do the same to my expenses. I think the survival guide needed to survive will allow one to adjust to that circumstances, not necessarily easy but definitely doable.
Before I go to the cashflow portion, I’d have to review on the balance sheet because they are somewhat interlinked.
On my own backend, I have the impression that I yield net positive cashflow as I seem to be able to add onto to my existing equity portfolio every month but that is about all I can guess. I do not exactly know the quantum on the amount.
For the purpose of easy reference, I had only included the equity portfolio so no cpf or anything else.
I was curious to find out and so went ahead to calculate this afternoon when both my boys were having their afternoon nap.
I knew expenses were creeping up due to certain circumstances these days so I was expecting my cashflow to be poorer than before.
I took a piece of paper and computed the big item range expenses I could think of and wrote it down. Some of the big item expenses that has a direct impact to my cashflow include insurance, taxes, school fees (pre-nursery), groceries, utilities, domestic helper & nanny’s salaries, transportation, meals, monthly doctor’s visit for my newborn, weekend spending and miscellaneous.
Cash inflow in my circumstances would only be coming from salary and dividend income. CPF was not taken into consideration in this instance because it doesn’t represent a cashflow for the time being.
My calculation shows that my current ratio of cash outflow to cash inflow (only salary excluding dividend income) stands at 78%, which means I have a net cash inflow of around 22% as a percentage of income every month. Including dividend, the ratio would drop to 57%, which translates to a net cash savings of 43% every month.
I am rather worried and more conscious on the spending these days because this sort of cash outflow has elevated to levels I have not seen before. My ratio of savings in the past was well over the 95% to 110% range but it has gone downhill after that. This means that my expenses are creeping up faster than my income could fetch.
I am rather glad I did this exercise because on some days I am rather complacent with the expenses portion since I do not track them closely.
I think with the elevated expenses and a rather tightening of cashflow, I might need to be more conscious on spending certain expenses now that I have the number with me on hand.
For those who have a rather poor controlling on their finances or cashflow, I’d encourage you to do this simple exercise just from a high level point of view. I think there’s a lot to takeaway and think about from this example.