Cash Flow Tree

This project is in

Steady State

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status as of

2/11/2022

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I had no mental model for my household’s cash flow.

I wrote about the end state: A Cash flow tree over on

Outer Orbit [ Cash Flow Visual: Branches & Roots ]⁠

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To get to this model, I had to go through several iterations, which I describe with illustrations below.

Version 0: Map Existing Connections

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Layout Details

There is no reason for the general shape of the map. I simply started with income and made white boxes for all the accounts with arrows to show directionality & destinations. The number and places for accounts is left over from when my wife and I had different jobs and were newly married. The circles are payment processors: essentially anyway cash can leave the accounts from credit card to auto-deductions for bills. Finally, colored boxes are destinations, with green representing long-term investment accounts & grey being current spending & bills.

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Version 1: Group Destinations by Category

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Changes Implemented

First, I wanted to keep the major account structure the same. That meant no new accounts opened, no existing accounts closed. I also think that trying to maintain different spending methods for different spending types creates unnecessary friction, so any spending can happen in whatever mode (blue circles) makes sense at the time of purchase. (This is especially evident if an irregular purchase like a gift is part of the same receipt as a regular one, like the current weeks groceries. It’s impractical and unnecessary to split the purchase at the register just to account for the spending in two different modes.)

Second, the funds (cash, stocks, funds) will always sit inside the accounts, but for the mental model the goals are the important visual. Using mental accounting to separate what is free to spend from what is assigned to another goal allows spending & allocating decisions to be made based on what is in that category. The desired end state is an account holding the amount of cash that is available for spending on regular expenses this month, and an account holding a separate line item for the current balance of all other goals. (I always leave a buffer to prevent overdraft from the unexpected, like a paycheck being delayed a day while a bill processes a day earlier.)

It also introduces the % split for each category. The goal here is to automate as much as possible by determining how much should go to each category at a time separate from the spending. Retirement savings are the easiest in this regard, because they are deducted from income, sent to the account, and invested automatically. If goals are known, and income is consistent, the allocation among line items in that category should be the same every month: simply divide that piece of income proportionally across goals. Then, for whatever is in the spending account, there is no need to specifically track each purchase, or know how the “pie is split.” It will constantly change anyway, so what matters is that its less than what you have for the month. If that account is deficient, it forces you to decide which of the goals you will take from to make up the difference. For example, did I have an emergency, so this is a valid time to draw from that fund, or did I just overspend, so I have to pull from a “Big Ticket Items” goal to cover it.

Problems with Version 1

While this accurately shows the flow of funds and should work in theory, looking at it doesn’t give an intuitive sense of what is happening. The account flows in the middle are a jumbled mess, and the percentages appear to be inconsistent because as the flow subdivides, the paths intersect. Income will always be the starting point, so I needed to divide the rest in a linear fashion to show the progression.

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Version 2: Stack Destination Categories in a Hierarchy

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Changes Implemented

The elements in version 2 are the same, but this time I started from the thought “Spending either comes from income or goals.” By grouping them together, and putting the relevant accounts on their opposite sides, the flow & percentages are more natural. This also allows the order of the goals to matter visually with Retirement first, emergency fund second, and the rest “filled with what’s left.” By having an amount & date for “Irregular Spending” items, they can be planned for, and reset as they happen, without making it feel like the larger goals are suddenly going backwards. In reverse, if the “Big Goals” are really essential, irregular spending items are forced into a proportional space alongside them and must stay small enough to guarantee some can still go up to the next level.

Problems with Version 2

While this is cleaner to look at, it would not stick with me after putting it away for a day or month. I first thought of the tree by considering the income to be water poured onto a plant. The current model didn’t work with that visual though, because the goals are all “below the surface,” while spending is seen, touched, and felt every day. Additionally, I didn’t want the goals to be the only thing that mattered to the model. I have things I want to reach but enjoying what I have, with where I am shouldn’t be discounted either. I am not trying to give up all fun now for great fun later, I just need to know that what I am spending fits into the model.

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Version 3: Current Working Model: The Financial Tree

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Changes Implemented

In this version income is unified into a single bucket that feeds the tree. Technically the account structure is less accurate, as some transfers happen automatically that are not visualized here. It’s a tradeoff that allows the goal/ income split (shown in version two as a green box and yellow diamond) to be combined into the idea “Is my tree getting enough water, or do I have to draw from my reserves / roots. I talk about why I like this in the outer orbit project (see link above.)

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