Annual Expenses – large, annual, semi-annual, quarterly or sporadic expenses like camp, vacations, HVAC service, landscapers NOT paid monthly.
Cash Flow – MONTHLY income after taxes and benefits (take home pay) minus monthly expenses and monthly savings for Annual Expenses
Cash Flow Secure - Your household spends LESS than it earns, has enough to save for Annual Expenses and has a small “cushion” each month of a bout $300.
Credit Card Debt (revolving) – Balances on your credit card(s) that are NOT PAID In full at the end of the month. The amount that “revolves” from month to month.
Cushion – aka checking account cushion, monthly amount left in checking – a cushion is an amount of money you leave in your checking account EACH month for things that come up that are not in ANY category like an A/C filter, a minor car repair or a minute clinic co-pay.
Emergency Savings – Savings for a TOTAL LOSS OF INCOME. This is not for things like car repairs. Emergency Savings is to keep your household going if suddenly all the income was gone, which is usually due to divorce, medical disability, or job loss. Generally, we recommend 3-6 months of your Monthly Expenses in savings, i.e. if you spend $5000/month on expenses and need to save $400/month for Annual Needs, you would want $5000+$400 = $5400 times 3 months ($16,200) to 6 months ($32,400) in liquid savings.
Employer Match – This is the amount, if any, that your employer contributes on your behalf to your employer’s retirement plan (e.g. 401k).If you don’t know whether your employer matches, look at your last paystub to see if there is an entry that looks like “401k ER contribution” or something like that. You can also ask your HR representative.
Monthly Expenses – any RECURRING expense for your household like the electric bill. It can also be expenses that recur generally, like “going out to dinner.” You may not go out the same amount each month or to the same place, but you do go out once in a while.
Net Worth – a measure of how you’re doing financially, but it’s pretty general. It is the amount of your savings and assets (equity in a home) minus your debts (mortgage, student loans, etc.).When you’re young (under 38 years old) it could be negative due to school loans, etc. and that’s okay. By around 45 years old, it should be positive or close to it.
Preferred Months of Emergency Savings – The number of months, usually 3-6 months, of expenses you have saved and liquid (in cash or cash equivalents) for a sudden total loss of income (see Emergency Savings above).
Rainy Day Expenses - Rainy Day Savings is for “stuff” that happens like car repairs, root canals and other large, unexpected, no-choice-in-the-matter expenses. Does NOT include things you choose to do like replace your car or go on vacation.
Rainy Day Savings/Annual Expenses Savings Account –We recommend you always have a certain amount in this account (“seed” money) for Rainy Day expenses (defined above) and then you save monthly (or annually) for Annual Expenses. This is a “living” account, you may need to withdraw money twice in one month if you have an emergency vet bill and a planned vacation, or it could go unused for a few months.
Recurring Household Income – the amount of take home pay your household RELIES on each month because it is paid either hourly, weekly, every two weeks, twice a month or monthly.It does NOT include bonuses, commissions, tax refunds or reimbursements.
Retirement Contribution – The amount you save for retirement from your paycheck.You may save a percentage, or an amount. Your employer may “match” (see Employer Match above) your contribution up to a limit.This would include a Roth or Traditional IRA contribution.
“seed” your Rainy Day/Annual Expenses account – we recommend you deposit $1500 if you are a renter and $3000 if you own your home into your Rainy Day Savings/Annual Expenses account for Rainy Day expenses. Each month, you also save for your Annual Needs into this account. That way, if you use some funds for a Rainy Day expense, they are replenished quickly by your monthly Annual Needs savings.If you end up having less in Annual Needs in order to make sure there is always about $3k in that account, you have to adjust your expectations for a vacation or some other flexible expense.
Take Home Pay – aka Net Pay, After Tax Pay – The amount you deposit in your bank (or cash) on payday. It’s your pay after all your taxes are withheld and any deductions are made for benefits and retirement.