Thoughts on Improving Cash Flow
I spend a lot of idle time thinking about how we can get our personal finances back to the glory days of 2008 for us. Back when we didn't have a larger home, a baby, 2 incomes and all the expenses that come with them. Thats not to say we want to go back to the way things were, just that I'd like to get closer to the comfort level we had back then when it came to our monthly obligations.
Back in mid-2008 we had $3,000+ free cash above our committed and typically living expenses for the month. In other words, after paying our typical bills, retirement savings, and mortgage payments we had about $3,000 left to save, invest, pay down debt or used to pay for large and or unexpected emergencies. Needless to say with the loss of 1 income and increased expenses our monthly cash flow has changed quite significantly.
If I ignore our Rental #2 refinancing we did in 2009 for a moment, we end up with <$500 free cash from our single income after our mortgages, retirement savings, and typical monthly expenses that we could save, invest, pay down debt or use for emergencies.
Things like small repairs, furnishing or other large purchases just wreck havoc on our ability to accumulate cash these days. Its frustrating and demoralizing at times. I recognize we were a bit spoiled by those months in 2008 when we had tremendous free cash to handle bumps in the road.
Obviously things have changed, but that doesn't mean that we can't take steps to adjust our monthly cash flow picture to improve this so we aren't living so quite on the edge.
We have already taken a couple steps:
- We refinanced our rental property reducing the monthly interest costs and reducing the minimum payment. Now we have ~$300 additional "free cash" from the rental income that we are using to pay down the loans further every month to eventually improve our cash flow further. In the meantime we consider that $300 "free cash" that we could reallocate to emergencies or other bumps in the road
- We have really focused on minimizing our family's committed monthly expenses in every way that we can.
So at this point that leaves us with about $800 in monthly "free cash". Once we payoff the Rental #2 mortgage with this monthly "free cash" that will improve to about $1,300 in monthly "free cash" in hopefully the next 3 years. $1,300/month is still a far cry from $3,000/month but significantly better than were we have been.
Once Rental #2 is paid off I'm thinking we could turn our attention to Rental #1 mortgages which with a $1,300 additional principal payment could be paid off in ~5-8 years. I imagine there will be hiccups and other investment opportunities along the way that could extend this by a couple of years. Once Rental #1 is paid off that would get us to $2,000 in monthly "free cash". Things would be looking pretty comfortable then compared to now.
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