Positive and negative cash flow
Positive cash flow means more came in than went out over the period. Negative means the opposite. The labels are simple; reading them well takes a little more care.
Positive cash flow
Your accounts grew. The surplus can build reserves, pay down debt or be invested, each of which raises net worth.
Negative cash flow
Your accounts shrank. This is not always a problem. Paying an annual insurance premium, a tax bill or a one-time purchase can push a single month negative without signaling anything wrong.
When it is a concern
- Several consecutive months of negative cash flow
- Negative cash flow funded by credit card balances that keep growing
- A cash balance trending toward zero with no income change in sight
Look at the average, then the shape
A trailing three to six month average smooths out lumpy months. After that, look at the shape within a month: when income arrives, when large payments clear, and where the balance is lowest.
Distinguish the causes
Negative cash flow from falling income calls for a different response than negative cash flow from rising fixed costs, or from one-off events. Knowing which one you face is the first useful step.