If net worth is a snapshot of your finances, cash flow is the video. It shows you the movement. Where money comes from, where it goes, and whether you’re moving forward or standing still.
What is cash flow?
Cash flow is simply the difference between money coming in and money going out over a specific period, usually a month.
Cash Flow = Income - Expenses
Positive cash flow: You earn more than you spend. The difference can be saved, invested, or used to pay down debt. This is how wealth starts.
Negative cash flow: You spend more than you earn. The gap has to be filled somehow, usually with debt. This is how wealth erodes.
Zero cash flow: Every euro that comes in goes right back out. You’re treading water.
Why most people don’t know their number?
Ask someone how much they earn, and they can usually tell you. Ask them how much they spend, and the answer gets fuzzy.
That’s because income is simple: it’s usually one or two sources. Expenses are scattered across a dozen categories and multiple accounts. The gym membership, the streaming services, the occasional dinner out, the groceries, the insurance payments: it all adds up, but rarely in a way you can see at a glance.
Without visibility, small leaks become big problems.
Fixed vs. variable expenses
Not all spending is the same. Breaking it into categories helps you see where the levers are.
Fixed expenses stay roughly the same each month: rent or mortgage, insurance, loan payments, subscriptions. You committed to these. They’re hard to change quickly, but they’re also predictable.
Variable expenses fluctuate: groceries, dining out, clothing, entertainment, travel. These are where most of the surprise spending hides. They’re also where you have the most control.
A simple way to find your cash flow
You don’t need a complex budget to start. Here’s a minimal approach:
- List your monthly income. Salary, side income, any regular inflow
- List your fixed expenses. Rent, loans, insurance, subscriptions
- Track your variable spending for one month. Use your bank statement. Every transaction
- Subtract. Income minus all expenses
The result is your monthly cash flow. If it’s positive, you have a surplus to work with. If it’s negative, something needs to change.
What does a healthy cash flow look like?
There’s no single right number, but a widely quoted guideline (the 50/30/20 split) looks like this:
- About 50% of income on needs (housing, food, transport, insurance)
- At least 20% for savings, debt repayment, or investments
- The remaining 30% for wants
These are rough targets, not rules. But if your needs eat up 80% of your income, there’s very little room to build anything.
Your savings rate: cash flow as a percentage
Once you know your cash flow number, turn it into a percentage:
Savings Rate = (Income - Expenses) x 100 / Income
If you earn €3,000 and spend €2,400, your savings rate is 20%. For tracking whether you are building wealth, that number often tells you more than your salary alone. Someone earning €6,000 with a 5% savings rate is building wealth slower than someone earning €3,000 with a 20% savings rate.
A common benchmark is 20%, matching the savings/debt slice in the guideline above. But the number matters less than the direction. Track it monthly. If it’s going up, your wealth engine is accelerating. If it’s going down, something changed.
The connection to net worth
Cash flow and net worth are linked. As we discussed in the income vs. wealth post, the gap between what you earn and what you spend is what feeds your net worth over time.
Positive cash flow each month means your assets grow (or your liabilities shrink). Negative cash flow means the opposite. Track one, and you’re already managing the other.
That surplus is the fuel for everything else. If you don’t have an emergency fund yet, a starter cushion is usually the first place it goes: your financial safety net. If you’re carrying high-interest debt, your surplus is also what powers the snowball or avalanche strategies we covered earlier. The order matters: stabilize, then optimize.