Cash flow

What It Means

Cash flow is the money that comes in minus the money that goes out over a stretch of time, such as a week or a month. (1) For a household, it's pay and other income set against bills and spending, and the timing counts along with the totals, because a bill due before payday has to be paid from cash already on hand. (2) For a business, it's the cash a company takes in and pays out, reported on a cash flow statement.

How It Sounds at Home

• "Our cash flow is tight until the 15th."
• "We're up on the month, just not this week."
• "That tax bill wrecks our cash flow every April."

The Breakdown

Worked example. The Okafors bring in $4,200 a month, and their regular bills and spending run $3,900. They start the quarter with $800 in checkingChecking accountA bank or credit union account for everyday money going in and out, used by debit card, checks, transfers and direct deposit. See more, and the car needs a $700 repair in the second month.

Over the three months, cash flow comes to a positive $200, but month 2 runs negative. Their starting cash covers it this time.

What the result means. A year of positive cash flow can still hide a month that comes up short, especially when big bills bunch together or a paycheck lands after the rent. A cushion in checking, or a sinking fundSinking fundMoney set aside in small, regular amounts for a known future cost, so the bill doesn't land on a single paycheck. See more for known big costs, can carry you through a negative month without a late feeLate feeA charge added when a payment arrives after its due date, set by the card agreement, lease or contract and limited by federal or state rules. See more or an overdraftOverdraftWhen a payment is bigger than your checking balance and the bank pays it anyway, leaving a negative balance you owe back, usually plus a fee. See more.

Cash flow in a business. The SEC's Beginners' Guide to Financial Statements describes a company's cash flow statement in three parts:

Good to Know

The CFPB's Your Money, Your Goals toolkit has a whole module on managing cash flow, with a free cash flow budgetBudgetA plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it. See more and a cash flow calendar you can fill in for your own month. At home, watch the months with an extra paycheck or a yearly bill, since those change a month's cash flow without changing your usual budget. In a business, cash and profit can move apart: the SEC's guide explains that the operating section starts from net incomeNet incomeWhat's left after everything is taken out: on a paycheck, pay after taxes and deductions; for a business, profit after all expenses and taxes. See more and adjusts it for items that involve no cash, such as depreciation.

Related Terms and Categories

• Budget

  A plan for a set period, usually a month, that lists the money you expect to receive and how you'll spend or save it.

• Bill calendar

  A calendar that shows each bill on the day it's due, often next to your paydays, so you can see which paycheck has to cover which bill.

• Paycheck to paycheck

  Spending all of one paycheck before the next arrives, so there's little or nothing left over in between.

• Net income

  What's left after everything is taken out: on a paycheck, pay after taxes and deductions; for a business, profit after all expenses and taxes.

Household money and budgeting