How to Manage Excess Cash Flow

Excess cash flow is the money left over in your checking account at the end the month. Your success with money is dependent on creating and doing smart things with it. In personal finance, excess cash flow is the money that’s left over in your checking account at the end of each month. Your success with money is heavily dependent on creating and doing smart things with it.

If you don’t have any excess cash flow, you may need to change shit up.

Each of my quarterly updates is about what I’ve done with excess cash flow for the previous three months. With this money, I build income streams to increase the amount of investment income I earn passively.

Eventually, after years of investing and compounding, my investment income will cover my essential living expenses so I can live life without the constraints of time or money.

Here at RBD, we also teach that you should invest first, and invest often. You can invest via employer-sponsored retirement savings, college savings, and invest whatever is leftover at the end of the month into taxable accounts.

Most of us have a checking account from which we pay bills and save. But for the past decade, many have ignored the use of money market accounts because the rates were so low.

But now that the Federal Reserve has raised interest rates five times in the last 2 years, some online money market savings accounts are paying as high as 1.85% (or more for CDs). Since ACH electronic transfers between banks are free, you can earn extra money from interest on your cash savings with a few clicks.

This article lays out how I manage my excess cash flow each month using both my checking and money market account.

Below, I’ve also included a visual diagram of how the money flows.

The Checking Utility

A checking account is the most useful utility for managing your budget and finances. Money comes in, money goes out.

Checking accounts allow for unlimited transactions both ways.

They are great for writing checks, paying bills electronically, and transferring money. And they often free as long as you meet the stated minimums.

However, with savings and money market accounts, you are limited by law to six withdrawals per month.

Like most of you, my checking account has dozens of transactions per month. My paycheck is deposited to it twice a month, then I use it to pay utility bills, our credit card, preschool tuition, and our mortgage.

I always start and end the month with the same amount of cash… $2,000.

Then at the end of the month, I take the end balance and minus $2,000. That equals my excess cash flow for the month.

The $2,000 stays in the checking account for the next month, and I transfer the excess cash flow to my money market account. From there, I invest.

If I end the month below $2,000, that means I spent (and invested) more than I earned. In that case, I transfer from savings back into checking to equal $2,000 to start the month again (this sucks when it happens, but doesn’t much anymore).

Why $2,000? Because that’s enough to cover any expenses before my first paycheck and keep the account minimum to avoid fees.

Your number may be different. Just keep it away from zero.

New Money Market Account

I use my money market account as my general savings/emergency fund, car savings fund, and vacation fund. While my money is parked there, it earns 1.85% (as of 08/20/18). That’s better than a lot of dividend stocks and risk-free.

I’m only allowed six transfers out of the account per month, so I still use checking as my primary cash flow management account. I use the six withdrawals to move money back to my checking when needed or to transfer funds to my investment accounts (usually TD Ameritrade, M1 Finance, or PeerStreet).

My savings was previously separated into four accounts (the three above, plus one for my condo rental) with Capital One 360 (formerly ING Direct). But I’ve recently left Capital One 360 for a number of reasons, most of all the stagnant interest rate.

I’ve since moved my money to CIT Bank, and I have two money market accounts now instead of four to simplify things and eliminate a few tax forms. The main one is a joint account for all of our personal savings goals combined. Then a separate account for the condo rental (reserves and security deposit).

Switching to CIT Bank nearly doubles the amount of interest I’m earning every month which will give me a needed boost in my next quarterly income report.

The higher rate is more important to me now because I’m planning to increase our emergency and vacation fund this year. I’m also building a new car fund with $200 per month to be tapped in four years when our oldest car turns 10.

Check out my CIT Bank review here.

Visualizing Monthly Excess Cash Flow

To better understand how my money flows, I had some fun creating the diagram below. It represents a typical month. Green is income. Black is an expense, and the blues represent savings and investment.

What comes out of the gray box at the bottom is our monthly excess cash flow.


I start each month with $2,000 in the bank. On the left side is my salaried income from my nine-to-five job. Retirement contributions are immediately deposited to my 403(b). I did not depict taxes or miscellaneous withholdings for this diagram.

Throughout the month, I may invest early with available cash, then I pay utility and credit card bills. We also take out cash for miscellaneous spending and invest in our kids’ VA 529 accounts every month.

At the end of the month, I draw from my business income checking account for the month, then an automated payment is made to our mortgage company.

From the month’s end balance, I subtract $2,000 for the next month and transfer what’s leftover to the money market account.

I have a simple Excel worksheet that segments the savings into Vacation, Car, and General Savings funds. I use this to track each amount instead of separate savings accounts.

Any time I make an investment in stocks or real estate crowdfunding, it comes from the General Savings fund. This fund can also be used to pay extra on any student loan or personal debt if you have any.

Interest pays into the money market account, which I proportionally segment into the sub-accounts in my spreadsheet.  Dividends from stocks and real estate crowdfunding reinvest.


This monthly cash flow diagram is how I’ve been operating our personal finances for years. Not until this week did I ever think about it visually. Other bloggers have done similar exercises and readers seem to always be interested in how real people manage their money.

This diagram isn’t perfect by any means. Months vary and money doesn’t always flow through to savings or investing as much as I would like.

But overall, I think it’s a good depiction of how I manage money and excess cash flow.

The key is to understand where your money goes. People often complicate their finances and it makes things harder to track.

Simplifying your finances is one way to help. You can also use a free money management tool such as Personal Capital or to view all of your money in one place.

Photo credit: StartupStockPhotos via Pixabay

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9 Responses to How to Manage Excess Cash Flow

  1. Marc @ Vital Dollar August 23, 2018 at 7:44 am #

    A few months ago I opened a money market account with CIT and moved our emergency fund there. SInce then I’ve opened two other money market accounts with them for other purposes. So far I’ve been really happy with CIT and the online interface is nice and easy to use.

    • Retire Before Dad August 24, 2018 at 10:26 am #

      Hey Marc… my original plan was to open multiple accounts. But I’ve been trying to reduce accounts. When I close my Cap 1 this month, that will eliminate 2 accounts, so I consider that a win. And I was tired of how capital one was fancifying their website. CIT is much simpler. Does what’s needed.

  2. Kyle August 23, 2018 at 3:55 pm #

    Love it! I think the $2K in reserve is key – this allows you to ride out the bumps if you have a more expensive month.

    I have a checking account for my wife’s job which pays for ALL of our personal expenses. We’ve balanced things out so that we are 100% living off of her salary. It has a minimum reserve of $10K – which is more than enough. I employ the same concept as you, if it raises above $10K, I invest the remainder. I don’t ever move money from savings to replenish UP to $10K if it dips below, I just let it ride a little and typically it will build back up the following month or two.

    Then I have a separate account for my job. Literally 100% of this gets invested, which is awesome!

    Finally we have a third account for real estate investing. This contains reserves for possible repairs and vacancies (minimum of $10K), as well as additional funds for the next deal. Extra “spillover” from the first two accounts get transferred to the real estate account to fund the next purchase and/or rehab.

    • Retire Before Dad August 24, 2018 at 10:28 am #

      Those are some solid buffers. I had my real estate account up to $10k, but decided to scale it back to $7k to put the money to work. But now with the higher yield, I want to bump it back up. I had a vacancy last year that cost me a few thousand. Next one I may just sell. Nice how you are living off one income. We do the same but only one of us works 🙂

  3. Dividend Diplomats August 23, 2018 at 10:26 pm #

    RBD –

    Do you know why I loved this article? Because this is what should get everyone’s blood pumping – to take the cash that you no longer need to have as an emergency and buy cash flowing assets or create more interest income through account transfers. Every fricken penny counts, every fricken penny.


    • Retire Before Dad August 24, 2018 at 10:30 am #

      Truth. It’s especially important for young people starting out. Watching the pennies flow in is motivational. Soon come the dollars, then hundreds, then Thousands. Then the compounding really kicks in. I’m just about reaching that $10k threshold when the compounding really starts to make a difference. Exciting times.

  4. Gentleman's Family Finances August 24, 2018 at 3:13 am #

    I like the systems thinking that you have and the money flow path.
    The way I’ve done it for a long time is to have a quadrant of Income, Outgoings, Investments/Transfers, Assets. From my income, my outgoings get taken off, I then have investmetns or transfers – like dividends, buys/sells and that should all add up to my net assets (with any change in underlying assets value.
    It has allowed me to have the visibility of where money is going and where it is circulating.
    Your system is pretty much the same but with a nice graph. 🙂 Love it!

    • Retire Before Dad August 24, 2018 at 10:32 am #

      I like the quadrant concept. I think of mine month by month. That way every month I know if we’ve been successful with achieving it goals of saving and investing every month.

  5. Mr. Robot August 30, 2018 at 6:26 am #

    I think they should teach this visual method to everybode in school. So that when you go out into the world you have an idea of where your money is going.

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