Financial Word of the Day: Cash Flow

Definition of Cash Flow

Cash flow is the movement of money in and out of your life or business. More specifically, it’s the money you have left over each month after all expenses are paid. Positive cash flow means more money is coming in than going out. Negative cash flow means the opposite.

In simple terms: Cash flow is what’s left after the bills stop talking.

Why Cash Flow Matters

Most people obsess over income. Some focus on net worth. Very few truly understand cash flow.

But here’s the truth: you can make a high income and still be broke if your cash flow is negative. And you can build wealth on a moderate income if your cash flow is consistently positive.

Cash flow is financial oxygen. Without it, nothing else works.

You can’t invest consistently. You can’t build assets. You can’t create freedom.

Positive cash flow creates options. And options are powerful.

Cash Flow vs. Income

Income is what you earn. Cash flow is what you keep.

If someone earns $200,000 per year but spends $210,000, they have a lifestyle problem — not an income problem.

On the other hand, someone earning $70,000 and spending $55,000 has created margin. That $15,000 gap? That’s opportunity.

Opportunity to invest. Opportunity to eliminate bad debt. Opportunity to build real wealth.

Learn more about important financial terms with Speak the Language of Money

Two Types of Cash Flow

1. Active Cash Flow – Money you earn by trading time for income (your job, consulting, commissions).

2. Passive Cash Flow – Money that continues to come in without daily effort (dividends, rental income, business systems, royalties).

The wealthy don’t just increase income. They increase passive cash flow. They build systems where money works for them.

How It Shows Up in Real Life

You might hear someone say:“We bought that rental property because it produces $600 per month in cash flow.”

Or:“My goal isn’t just to save more. It’s to build enough cash flow to cover my monthly expenses.”

That second statement is key.

When your passive cash flow exceeds your monthly expenses, you’ve reached a powerful milestone: financial independence.

That doesn’t mean you stop working.It means you no longer have to.

How to Improve Your Cash Flow

Start simple:

• Increase income (strategically, not just emotionally).

• Reduce unnecessary expenses.

• Eliminate high-interest consumer debt.

• Build income-producing assets.

• Automate investing so excess cash gets deployed, not wasted.

Cash flow improves through systems, not luck.

A Final Thought

Most people chase net worth because it sounds impressive. Smart people chase cash flow because it creates freedom.

A high net worth with poor cash flow feels stressful. Strong cash flow — even at a modest net worth — feels stable.

Focus on building consistent positive cash flow. Then put that cash to work. That’s how wealth is built — one surplus month at a time.