I read this article by a behaviour scientist about how he manages his monthly cash flow. It’s almost strange how much my cash flow management and his style have in common.
Here is the philosophy that we both share when it comes to monthly cash flow management:
- Keep as little cash on hand as possible: Avoid inflation and impulse over-spending.
- Consider saving towards a bill you have to pay. Your spending is the negotiable part.
- Reduce stressful coordination problems with my partner by having three spending accounts (mine, hers, ours).
- Invest at low-risk levels for short- and moderate- term goals.
- Try to self-insure as much as possible (there are exceptions!).
The image below summaries my monthly expenses best:
Some more highlights from the article:
1. Maintaining Purchasing Power
I hate inflation. At least a market crash has the decency to show up in your balance. Inflation doesn’t tell you that it’s cost you. My approach means that on average I’ll outpace inflation, even if it means an occasional down year. I’d rather a positive expected outcome than a sure negative one.
2. No Regrets
Lots of people would probably be upset if they lost money over this short period of time. To me, that’s just part of life. I’ll win some, I’ll lose some, but on average I’ll be better off for having played. But I never risk more than I can comfortably lose.
3. Comfortable Margin of Safety
I can take more risk with my money because I have enough money to risk it, and not be destroyed.
4. Vaccinating Against Lifestyle Creep
Another superpower is avoiding a taste for expensive things: clothes, TV, shoes, food. I’m not a monk, but a PBR and a $2.00 slice of pizza make me pretty happy.
I also don’t have a car, and I stay near work so I walk (try to get that Vitamin D). We buy a lot of things used: furniture and food (just kidding!). I get lunch at work or come home to eat it with K. I use our local library to borrow books I’m not sure I want to buy.