Cash Flow Concepts
Positive Cash Flows
Cash flow is the flow of your money. When money is paid to you, it is called positive cash flow or a cash inflow. You can remember that it's "positive," because it's great to get more money. Positive cash flow can come from a variety of different sources. We can divide types of cash flow into two groups: recurring positive cash flow and one-time cash flow. Both are potentially very useful in your overall financial plan.
Recurring positive cash flow comes in multiple payments from a source that keeps going on a long-term basis. If you have assets that pay you a regular amount every month, quarter or year this is recurring cash flow. If you practice a profession on a regular basis or have a job, this is also recurring cash flow. Recurring cash flow is great because you can predict it and plan for its use.
A one-time cash flow may come from the sale of an asset, winning a monetary prize, an inheritance or in some other way getting a lump sum at a single time. When you ignore most of this money and put the bulk of it into your plan, you're that much further ahead without putting in extra effort. Most of your financial goals can be met without winning the lottery!
Negative Cash Flows
The flow of cash goes both ways, and there is no way to entirely eliminate negative cash flow. There will always be some kind of expenses regardless of how frugal you may be. If you are like most people, you have both fixed expenses and one-time expenses that result in negative cash flow.
Recurring negative cash flows are repeating payments made on a regular basis. Your utilities, the price of feeding your family, rent and the gas you use to get to work are all recurring negative cash flows. While you can moderate these expenses to a point, they are here to stay and your positive cash flow has to cover them.
One-time negative cash flow tends to be paid for large purchases and emergencies that happen in life. A large medical bill or making the down payment on your home are both examples of one-time negative cash flow.