Paul’s After-Tax Cash Flow Analysis

Every few years I decide to sit down and analyze all of the money coming in and flowing out of my household on a monthly basis. I typically don’t track my spending very carefully because I try to “pay myself first” by only spending the money we have left over after all of our targeted savings and bills. However, if we spend too much in a given month we end up transferring money out of savings to keep my checking account funded until the next pay check. This has been happening a bit too much in the past few months, so I’ve decided to reacquaint myself with where our money is going, and produced the following table:

Let’s go through some of the more interesting items:

• Paul and Ann’s Paychecks- this is our after-tax income calculated monthly. Ann’s paycheck is a bit of an estimate/average due to her slightly inconsistent hours combined with her hourly wage.
• Mortgage – We pay a bit extra on the mortgage each month, and this amount includes the extra.
• Student Loans – Again, we pay a bit extra on our student loans each month, and this amount reflects that extra portion as well.
• Gasoline – This is an average taken over the last 12 months. I would expect this to go up a bit in the coming months due to our new vehicle, which gets slightly worse gas mileage than our last.
• Groceries – Again, an average over the last 12 months. Hopefully this drops a bit in the near future due to transitioning our young son off of baby formula. Holy crap that stuff is expensive!
• Long Term Bills – This line reflects a multitude of items, like garbage collection, car insurance, home insurance, property taxes, etc…. These bills are bills that we pay either annually or semi-annually. The amount listed here is what we transfer into a targeted savings account each month to cover these future bills. We do this so it’s never a shock when one comes due.
• Daycare – We get 50% off, and this is still a huge amount!
• General Savings – this is the amount that we transfer into our emergency fund savings account every month. Like I said, in “bad spending months” we will withdraw from this account when needed. Anytime this account goes above $10,000 we transfer the balance into another account for a down payment on a future house.

Wow, after all of this activity we only have $138 left each month! No wonder I need to transfer money out of savings to pay CC bills every once in a while. Granted, this chart includes some significant dollars put into savings, but I still didn’t expect the leftover amount to be so small. A normal cash flow statement wouldn’t break out the amount put into savings, but we look at savings as bills paid to us, so I think it still belongs.

I seems to me there a few things we can do to improve the look of this chart:

• Reduce the amount put into General Savings each month. This will leave more in our checking account for discretionary spending, but will obviously reduce the amount going into savings each month. But is it really going into savings if we just need to transfer it out again, like we currently sometimes have to do?
• Reduce our spending by getting rid of some services we pay for, like TV service or reducing cell phone service. I feel like we don’t get a lot of bang for our buck here.
• Reduce spending by going out to eat less. I was surprised to see this number was so high. We definitely should look into this.

However, I think for the time being we’re going to continue with the status quo . From here on out I want to do a monthly cash flow statement with actual spending per month to see where we are actually at. We’ve had a lot of change over the last year with the new baby and the new car, so my guess is the averages in the above sheet aren’t entirely accurate.

Expect updates around this time each month!

Edit 2/13/12 – I’ve decided to mitigate the situation a bit by changing my ‘pay myself first’ parameters a bit. I will now be removing the cost of daycare from my automatic savings, and instead have it go into checking. Since we use a childcare reimbursement account for tax savings, I can then take the reimbursements and automatically put them into savings. This should reduce the amount of transferring from savings to checking we need to do by giving us more spending cash up front that will be reimbursed at the back end later.