Managing Cash Flow

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Topic Author
NYCaviator
Posts: 275
Joined: Sat Apr 09, 2016 5:06 pm
Location: NYC

Managing Cash Flow

Post by NYCaviator »

I’m looking to simplify cash flow and would like some ideas.

I am relatively newly “self-employed,” but my spouse is W2. My medical practice distributes profits on an irregular schedule. I get certain distributions bi-weekly, occasionally weekly, and others monthly. The amounts can vary greatly based on how the practice is doing. I set aside 40% of all my incoming money for taxes.

The problem is keeping track of the irregular distributions. If it were once a month it would be much easier. Right now I have to constantly check my account to see what was deposited and then move 40% to a separate savings account for taxes.

What’s left in checking I can set aside for our monthly fixed expenses and move the rest to our investment account. This is getting to be very tedious, given the irregular distributions.

I was thinking having one checking (or savings?) account that all my distributions get deposited into and then once or twice a month move 60% to a second checking account that would serve as my primary account. I could keep a couple months fixed expenses plus extra for groceries, gas, etc. in that second checking account. I would then have my quarterly taxes paid from that first account.

Is that just over complicating things? Anyone have an easier system?

I’m at schwab now, and if I open a second checking account I have to open a second brokerage (I don’t even use the one I have now). I was thinking of moving to a local B&M or CapOne.
Werty
Posts: 3
Joined: Tue Jul 07, 2020 9:39 pm

Re: Managing Cash Flow

Post by Werty »

My cash flow is similar with big swings from month to month based on incentives that aren't set in stone. I automate as much as I can. My company allows me to send x% to one account and the rest to another etc. Up to 5 accounts.

1) I would send 40% to a high yield savings account and the other 60% to a second savings account.
2) Figure out monthly expenses amount you are comfortable with and set up an auto transfer for that amount monthly from the 60% account to your checking account to pay bills.

That leaves you with a "taxes" account, savings account, and a paycheck to checking that feels consistant without having to do any work.
BrianJM
Posts: 32
Joined: Sat Jul 12, 2014 1:30 pm

Re: Managing Cash Flow

Post by BrianJM »

Check out Profit First by Mike Michalowicz. It outlines a simple but effective business cash flow system that will simplify your distributions and make cash flow for manageable on a personal level. There are summaries available online to get an idea of what the system entails.
deserat
Posts: 59
Joined: Fri Dec 27, 2019 5:08 am

Re: Managing Cash Flow

Post by deserat »

NYCaviator wrote: Tue Jul 07, 2020 9:32 pm I’m looking to simplify cash flow and would like some ideas.

I am relatively newly “self-employed,” but my spouse is W2. My medical practice distributes profits on an irregular schedule. I get certain distributions bi-weekly, occasionally weekly, and others monthly. The amounts can vary greatly based on how the practice is doing. I set aside 40% of all my incoming money for taxes.

The problem is keeping track of the irregular distributions. If it were once a month it would be much easier. Right now I have to constantly check my account to see what was deposited and then move 40% to a separate savings account for taxes.

What’s left in checking I can set aside for our monthly fixed expenses and move the rest to our investment account. This is getting to be very tedious, given the irregular distributions.

I was thinking having one checking (or savings?) account that all my distributions get deposited into and then once or twice a month move 60% to a second checking account that would serve as my primary account. I could keep a couple months fixed expenses plus extra for groceries, gas, etc. in that second checking account. I would then have my quarterly taxes paid from that first account.

Is that just over complicating things? Anyone have an easier system?

I’m at Schwab now, and if I open a second checking account I have to open a second brokerage (I don’t even use the one I have now). I was thinking of moving to a local B&M or CapOne.
No, you are not over complicating. What you are trying to do is smooth out variable income streams. With my consultancy, I have a similar issue.

Your idea of percentages is spot on. I did the following in order: All money was transferred to business account. All business expenses were paid by credit card if possible. All expenses were paid monthly out of business account. %20-25% of amount after expenses was invested in SEP IRA. After expenses and SEP IRA were covered, %40-50 of that sum was kept in the business account for taxes. Quarterly estimated taxes were paid from business account. What was left was transferred to personal account for use like a 'salary.' Also tried to save 25-50% of funds transferred into personal account as after tax savings. I have a cash flow spreadsheet that tracks expenses (recurring and one-time like travel for projects), invoices (amount and dates sent, and funds received), estimated taxes, and SEP IRA contributions. The SEP IRA contributions are also set up so that I can see how increasing/decreasing contributions will affect taxes.

Works like a charm. I use a credit union for my business account, Vanguard for my investments, USAA (will probably close that due to escalating issues with them)/other credit union for personal account. All permissions for fund transfers are set up between all accounts. Have another 'personal-business' account that is at a credit union that functions both as a US and EU bank. Can receive Euro payments there and pay Euro bills. *All* consulting income hits the business account regardless of origination. Helps establish financial separation between personal and business finances.

I like credit unions -however, I do see a lot of people use other B&M/Cap One or Ally. I live over seas right now and have not had issues with accessing any of my money - I use a card that has no foreign transaction fees; I also get cash back.

Hope the above helps - I'm an engineer, so having an algorithm helped me stay disciplined.
Topic Author
NYCaviator
Posts: 275
Joined: Sat Apr 09, 2016 5:06 pm
Location: NYC

Re: Managing Cash Flow

Post by NYCaviator »

deserat wrote: Wed Jul 08, 2020 6:04 am
NYCaviator wrote: Tue Jul 07, 2020 9:32 pm I’m looking to simplify cash flow and would like some ideas.
Hope the above helps - I'm an engineer, so having an algorithm helped me stay disciplined.
I like this a lot, thanks! Our business account is handled through the practice, so I just have to deal with distributions once they get transferred to me. Are you only transferring to your personal account once every quarter?

I think maybe a 3 account system might work for me. One account where all distributions get sent, and then periodically (once or twice a month) transfer 40% of what's in that account to a savings account for taxes and the rest to a checking account for bills/spending/brokerage/etc.

I hate to have multiple accounts, but problem with depositing distributions into the same account I use for bills/spending/etc. is tracking everything. Since the distributions come in at varied times and varied amounts, it's hard to keep track of whether I transferred the correct amounts to savings for taxes versus what's available for bills and spending. I don't have the time to deal with that. I also don't want my spouse's check deposited into the same account because that makes it even more difficult to keep track of my own deposits that need to have taxes withheld. So I guess we could make the "spending" account our joint account.
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BolderBoy
Posts: 5383
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Managing Cash Flow

Post by BolderBoy »

NYCaviator wrote: Tue Jul 07, 2020 9:32 pmI was thinking having one checking (or savings?) account that all my distributions get deposited into and then once or twice a month move 60% to a second checking account that would serve as my primary account. I could keep a couple months fixed expenses plus extra for groceries, gas, etc. in that second checking account. I would then have my quarterly taxes paid from that first account.
When I had my side-gig anesthesia practice that is essentially what I did. Very easy to follow.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
deserat
Posts: 59
Joined: Fri Dec 27, 2019 5:08 am

Re: Managing Cash Flow

Post by deserat »

"Are you only transferring to your personal account once every quarter?"

I do it when I got paid as I wanted to get the SEP IRA transactions done ASAP - it's the pay yourself principle - so while I was mucking about with the funds transfers, I transfer to my personal account at the same time.

However, I could back off and do the personal transfer in a more periodic fashion (monthly, quarterly). Where I am very diligent is at the end of the year. I try to clear out the business account and only leave a small buffer for incidental expenses and the 15 Jan quarterly taxes. Inevitably, I transfer quite a bit to my personal account and/or add a bit more to the SEP IRA at the end of the year. I try not to have more than $5K in the account plus estimated taxes in the account at the end of the year. It's a physical transactional mechanism for me to make sure I tidy up the books at the end of the year and start the new year.
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