Cash-Flow Equation

By: Austin Colby, CFP^®, MBA

People talk about “cash-flow” quite a bit, and based on how they use the term, I don’t think they fully understand what it means.

Cash-flow is all the money you have coming in, less all the money you have going out.

Income minus expenses.

The number at the end of that formula (be it positive or negative) is your personal cash-flow.

Oftentimes we see people who spend a lot of money and assume they have great cash-flow.  In reality, those people may indeed have good income but terrible (even negative) cash-flow because of their spending habits.

Cash-flow is one of the biggest contributors or detractors to long-term net worth creation.  The more positive cash-flow you create, the more money you can put to work for your future benefit.

What is your personal cash-flow?