Liquidity Management

Core Concepts

Cash Flow Forecasting

Project income and expenses monthly for 12+ months:

• Income sources: salary, business income, investment income, rental income, side gigs
• Fixed expenses: mortgage/rent, insurance, subscriptions, loan payments
• Variable expenses: food, utilities, discretionary spending
• Periodic lumpy expenses: property taxes, insurance premiums, tuition, estimated taxes
• Net cash flow: income - expenses per period → identifies surplus/deficit months

Income Smoothing (Variable Earners)

For commission, freelance, seasonal, or bonus-heavy income:

• Compute trailing 12-month average income as "base salary equivalent"
• Budget based on base amount, not peak months
• Buffer surplus months into a smoothing reserve (separate from emergency fund)
• Target smoothing reserve: 2-3 months of base expenses
• Draw from reserve in below-average months