2. Monthly Cashflow Analysis

2. Monthly Cashflow Analysis

There are only two ways to make money, and that is to exchange for

  • Your own time and effort
  • Your own money as an investment

What also tends to be true is that the poorer you are, the more time and effort you will be putting in. The wealthier people tend to put their money to work instead and earn passive income.

Types of Investments

Most people start from the left end of the spectrum, but the goal is to end up somewhere on the right eventually. Unless you've won a lottery or was born with a silver spoon, there is no way to skip and fast track. Like the gradient spectrum in the diagram above, this journey must be a continuous and gradual change. There is a strategy to make this change sustainable over a long period instead of abruptly, resulting in financial disaster. It involves having a completely transparent view of all your in / out cash flow every month.

Monthly Cashflow Analysis is an analysis you can do at the end of each month to summarise and monitor the following equation in your household.

Total Income - Total Expense = Profit

Total Incomes

List of all the income streams after the income tax. For most people, there will only be one or two for a while in the beginning.

Total Expenses

List all the expenses your household paid during the month. There are three major types of these expenses.

  • Re-occurring payments: these are your regular monthly payments such as water, electricity, gas, internet, phones, Netflix, Amazon Prime, etc.
  • Groceries: although these are monthly expenses, their amounts are variable month-to-month. For example, you might have double the usual grocery bills, like Christmas, during the holiday season. These include food, toiletries, cleaning supplies, laundry detergents, etc. You can lump all the household supplies in here.
  • One-off expenses: these are unexpected one-off expenses that had to happen during the month. They should be the things that come from necessity rather than wants. For example, purchasing a pair of gloves should be considered a one-off expense to prepare for the winter season. However, if you've spent unnecessarily high-end expense brand, it doesn't belong in the one-off expenses, and it belongs in the free-spending category, which this guide will cover next.


Once you calculate the profit amount, it's time to decide the split between free-spending and investments. By definition, free-spending is the money set aside for everyone in the household to spend for their pleasures. As mentioned earlier in the expenses section, sometimes there is a grey area between one-off expenses and free-spending. You have to be honest with yourself and categorise the payment accordingly. What exactly should be the split between free spending and investment depends on your family's needs. I have been doing 20% free-spending and 80% investment when I was younger for about 15 years. Now I have cut myself some slack and currently doing 30% free spending and 70% investing.

Here is a link to an example Google Sheet that you can use for your monthly analysis if you are tech-savvy.

I've mentioned earlier that the change from putting in your own time and efforts to capital based investments should take place gradually. You can achieve this by tweaking the free-spending vs investments split percentage on your monthly household profits. In the beginning, you can set the split to be 80% free-spending and 20% investment. As you get older, your income will increase and then you should look to gradually increase the investments more.

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