Why I Purposely Lose Cash Every Month

lose cash featured

Popular personal finance blogs and practical sense advocate for you to make more cash than lose cash in the last 30 days. If you spend more than what you bring in, there needs to be something that makes up that gap (like debt), otherwise your funds will dwindle. I wholeheartedly agree that over the long term to be sustainable, that needs to happen. However, I lose cash more months out of the year than not. Losing cash is not always a bad proposition, depending on the circumstances.

I Purposely Lose Cash Almost Every Month

First, I am a huge advocate of budgeting. I’m obsessed with how I can minimize my expenses and look over it weekly. Below is a crude outline of my budget without getting largely into the specifics that outlines how I lose cash each month. 

less cash

As you can see from above, on a typical 2 pay period month (the income number is a little misleading because I just took my last period’s paycheck and multiplied by 2, which isn’t a yearly number), I lose cash. I contribute 50% of my income into my 401k. The other 50% goes to those respective categories with a few variations in between.

I consistently lose cash every month in 2-pay period months. If this goes on forever, I’m surely setting myself up for failure. What gives, aren’t I a big personal finance fanatic?! I sure am, let me explain!

Strategic 401k Contribution

I don’t consider my 401k to be cash at all, which is why I subtract the 401k number from my monthly cash inflow number. This is what’s driving my cash flow to be negative every month. I automatically contribute 50% of my income into it. It would make sense to lower my contribution by $60 a month to balance my cash flow out to at least be even, right? Not as of right now.

Currently, I’m working in Alabama that has a state and city income tax. Therefore, it makes sense to lower my taxable income as much as possible while I’m working in Alabama. I’m trying hard to move back to my home state (Texas) where state income taxes don’t exist. Neither does grocery taxes (I was shocked when Alabama charged me an extra 10% for my food costs).

Texas cost of living is higher but that’s mainly only on housing. I can do some research to get a good apartment at a price that is equivalent to what I’m currently paying plus the income tax savings I would realize.

Therefore, I could save money by moving to Texas because there are no grocery taxes, lower taxes from 10% to 8.25%, and quite possibly a raise for “living adjustment'” (I’m not counting on this, though).

Furthermore, I started work mid-year. I have to catch up to the 6.5 months of not contributing to my 401k. I’m currently sitting at a 6.5k 401k balance and I won’t be able to max it out to the limit ($18,000) with my current contribution rate. However, I’m trying the best I can to do so, which is why I’m fine with a short-term cash crunch. Next year, I will lower my 401k contribution to be around 30%.

Emergency Funds Will Keep Me Afloat

Currently, my bank account balance is at $2,500. If I were to keep up with my current rate of savings and spending, that money will allow me to live on for another 41 months. ($2500/$60). I can also cover unexpected expenses as well because my after-tax brokerage account has a healthy multi-5 figure balance. I will withdraw funds if unexpected yet necessary expenses come up.

However, I don’t expect to have to withdraw from my account because:

* 3 paycheck months exist. My negative cash flow will only happen certain months out of the year. During 3 paycheck months, I will turn back into the positive cash flow territory where rainbows and unicorns are there for me. 

* 50% 401k contribution will only apply this year. I can’t contribute 50% of my income next year because I will be well over the $18,000 contribution limit (fingers crossed that it will go up to $18,500). With a salary of around $54300, 50% contribution will be well over the limit (about $9,150 over in fact). I will be lowering my contribution rate in a year’s time.

* I have wiggle room to cut expenses. There’s the most opportunity to cut my food and miscellaneous expenses. For the past 3 months, I averaged about $120 a month for miscellaneous expenses and about $185 a month for grocery expenses. That’s an extra $55 a month in opportunity that I can realize. I don’t change my budget for them though because I want to put in a margin of safety. 


Why I’m not worried about losing cash every month is that it’s only temporary. Furthermore, I have an ample cash balance that can keep me afloat during the temporary period. I consider myself to have a high savings rate, which is what makes me bleed cash every month. However, it will be worth it 3 months from now (2017 is when my 401k contribution will be lower).

Countless personal finance coaches, bloggers, and fanatics (including me) advocate for positive cash flow. I wanted to share an instance where it’s OK to lose cash every month. As long as the negative cash flow isn’t permanent, it could be a smart move.

Finding the right reasons to do so is key. I save quite a few dollars on taxes by contributing so much of my salary to my 401k. My emergency fund will be enough to cover my negative cash flow over the long term. I’m practicing the short-term loss for long-term gain that is largely advocated.

Readers, would you be fine if you lose cash month over month? What are your strategies to keep your cash flow positive? Let me know in the comments below!

Finance Solver

I grew my net worth to $40,000 as a college student through hard work, discipline, and a little bit of luck. I graduated college in 2016 and will be starting to plan for my retirement once I start working.I am planning on reaching financial independence by my early 30's and I will document my moments of inspiration all the way to desperation here.

My goal is to enable your success in personal finance so that you can realize the American dream. The first step is starting today!

Read more about me here.

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28 thoughts on “Why I Purposely Lose Cash Every Month

  1. Since so much is going into your 401(K) and you have ample reserves, I think most personal finance bloggers are fine with this.Yes, cash is going out, but it’s still building net worth rather than going into a lot of consumables. I think the issue is when you are spending more than you are getting AND you aren’t building any wealth.

    • Finance Solver says:

      I hope so! I’ve seen a Financial Samurai post that we should save until it hurts to know our limit. It doesn’t really hurt that much right now because I lowered my 401k contribution from 55% to 50% just cause I think 50% is more than enough still and I could use the extra 5% ($200 a month) to help with my cash flow. I was a lot more negative each month than $60 before I changed my contribution rate!

  2. We definitely have something in common. I have all of my investments scheduled into my budget and run a negative balance of $38 a month. Once I begin work next month it will be interesting to see how this budget works out. I definitely do not plan on reducing my investments so I will likely just cut back on certain expenses depending on the month. If not then I can tap into my emergency fund.

    • Finance Solver says:

      Nice! Short term pain for long term gain is how I like to look at it. It feels really nice having a steady paycheck and not have to look at prices for EVERYTHING that I buy, which was how I was in college. I still do it but it affects me a lot less than it used to back then. I definitely see areas where I can cut back a little every month to tip my cash flow to be positive but it hasn’t happened yet!

  3. As long as you don’t have a liquidity crunch I see no concerns with your current situation. You appear to have ample reserves so it should go well.
    I do much the same thing, as I’ve transitioned to a single income family I had to redo our budget. Simultaneously I got a pay increase so there was a lot to consider.

    Buried in my finances are my 401K contribution, an auto withdrawl to a savings account, HSA, and other things. These aren’t even considered in my budget, I start my budget from my take home after those things. My goal is to be cash flow neutral every month after these as then I don’t have an opportunity to lifestyle creep.

    • Finance Solver says:

      That was the plan, at least! I’m hoping not to have to dig into my reserves as I’m waiting for the elusive 3 paycheck month (December can’t come soon enough!).

      That’s great with the pay increase. I need to go to the drawing board and figure out how I can increase my income, but I suspect that will take quite a bit of time before I find one that works.

      That’s a noble goal. Cash flow positive / neutral months after savings are taken into account is what makes up a dream budget. Sounds like you are saving like there’s no tomorrow which will make you so rich later on!

    • Finance Solver says:

      Thanks Matt! I’m a little scared at the tax risk that’s set in place when I do decide to cash out my 401k but I think that’s for future me to worry about. I’m enjoying a lot of tax savings so far, though!

  4. Sometimes our income/expense spreadsheet looks funny as well. I take the after-tax income which is net of 401k, HSA, etc., so some months we truly are “losing” money. In reality some of those $ that aren’t accounted for our going into our investment accounts.

    • Finance Solver says:

      Yes! I’m fine with “losing” money as long as the loss goes to meaningful things like to a house, retirement accounts, etc. It’s a current investment for future earnings, which I am glad to take on, any day of the week.

  5. We are the same way. I squeeze every bit of savings out of our monthly income as I can, sometimes to the point that we show a loss. Like you, we have a savings account we use to supplement, if it’s needed. But usually, we figure out a way to scrape by. I don’t really consider it a loss, because it’s building net worth, plus saving on taxes!

    • Finance Solver says:

      I especially love saving on taxes! I would say I save thousands of dollars a year because I contribute to tax efficient retirement accounts, which makes me very happy.

      I think I try to find a way to scrape by as well but unexpected expenses always seem to show up, resulting in a $60 a month loss!

  6. You maximizing your 401k contribution early in life. That is the right thing to do.

    You could choose to save more in an after tax account and show more deficit. I used to be this way. I didn’t like to see negative balance on my spreadsheet. It was driving me nuts because I was not in a world of hurt.

    You could use a cash back credit card that pays 2% cash back (Fidelity and Citi Double) on all purchases – pay off the balance in full on a monthly basis. This may not account for $60 a month but will make a difference.

    Challenge yourself to come up with a creative way to earn that $60 per month. You mind will work wonders, then write about it. I would like to see a post on it :).

    • Finance Solver says:

      I thought about doing so, but it kinda scares me to lose cash so much. I want to have a big cushion because my car could break down any second and would like the liquidity to pay off big unexpected expenses.

      I do use Citi Double! I normally don’t count this as an extra income source, though. I have about $550 in rewards sitting at my credit cards rewards program. I probably should take full advantage of this, but I wanted to see how far I could go in a year’s time.

      Great idea! I would like to come up with new ways, after cutting my expenses a lot, side income is my next target! 🙂

  7. What do you mean “Next year is when my employer starts to contribute towards my 401k, so I will have to contribute that much less myself”? You probably already know this but your employer’s contributions don’t count towards your 18k limit. For example, I put 25k+ into my 401k every year when you include my 18k and my employer’s contributions.

    • Finance Solver says:

      Thanks for pointing that out Julie! that was my mistake. It is fixed now. That’s a fantastic employer contribution rate, my employer will only give me an extra 2% next year. I know my friends have a dollar for dollar match with their company (vested in 2 year’s time) and was shocked that an employer would contribute that much to keep employees with their company longer. Tradeoff decisions!

  8. Nice job taking advantage of the situation as much as you can FS – it makes total sense! I’d do the same situation. In the long run you’ll definitely be better off.

    Alabama sounds expensive, I’d have thought it would have been one of the cheaper states.

    We have a very positive cash flow each month, so we’re in a different state of budget – but we have different circumstances so it’s all good 🙂


    • Finance Solver says:

      Trying my best!

      Alabama really isn’t that expensive. I pay very little for rent (compared to Texas’ rent) and the food costs are really cheap. It’s just the taxes that are ruining my cash flow plus my savings rate. I don’t think I would be able to save the same amount if I went back to my home state of Texas though.

      Yes! Everybody has different budgets / cash flow numbers. I wanted to show an instance where a negative cash flow isn’t the worst thing in the world.

    • Finance Solver says:

      I hope it is. Nice! I actually had a job offer in LA and didn’t take it because I didn’t think that it would provide a sustainable income. Really beautiful state / city, though. Did you like Oregon?

  9. You are doing a great job at thinking ahead and planning – something that I wish more people were taught at a younger age so that they can come out on top later in life. It sounds like you have thought this through and know that it is temporary so that you can get to where you would to go. Great job and I wish you luck in the future!

    • Finance Solver says:

      Thank you so much I appreciate it! The only reason why I think I took early steps was because I started reading personal finance blogs. Now I regret not stumbling on these sooner / not starting my blog sooner!

  10. I like holding a lot of cash, but we don’t think of very much of it as an emergency fund more of an opportunity fund or an agility fund. Just about 3-4 months of expenses is actually an emergency fund in our mind.

    Other than the unexpected failure of electronics we’ve only had to dip into our efund twice. The first time was to replace our only car (we sort of upgraded), and the second time was to pay for stitches (technically we had the money in an HSA, but we thought better of using it at the time).

    The nice thing about holding a lot of cash is that you can deploy it in emergencies, but you can also take advantage of opportunities that don’t come around too often (like buying a $65K

    • Finance Solver says:

      My emergency fund is more of an investing fund / emergency fund. I don’t have so much in my account that can cover 3-4 months of expenses (probably 1-2 months).
      Nice! I should probably start using my HSA balance for my medical expenses. I know I put the debit card somewhere, I need to go and find it. I thought it would be better to just leave it in the account and let it be invested but now I’m not so sure about that approach!

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