Revisiting Cash vs Cashflow: Why Cashflow Now Matters More Than Ever To Me

Back in June 2023, I wrote a blog post titled "Which Is More Essential in Personal Finance – Cash or Cashflow?", where I explored the age-old debate between the value of having cash on hand versus the importance of generating cashflow.  At the time, I concluded that both cash and cashflow are equally important, but still leaned slightly towards the security that cashflow provides, especially amid market volatility and rising uncertainty.

Two years have passed since then.  Along the way, my investment journey has matured slightly, my financial goals became clearer, and most importantly, I found a firmer footing on the path toward Barista FIRE, which is aiming to begin my progressive semi-retirement in phases starting next year with a part-time income and a more robust investment portfolio generating passive income.  Now, as I reflect and prepare for this next life phase, I have a stronger conviction: cashflow is more important than cash, especially for someone approaching FIRE or already living it.

What Brought About The Affirmation In Perspective?

1)     Cash is Static, Cashflow is Dynamic

Cash is a store of value.  It sits idle unless put to use.  However cashflow is the fuel that sustains life after full-time employment.  It is what pays the bills, covers the insurance premiums, and puts food on the table without dipping into your capital.

When I was in the accumulation phase, I naturally focused on savings rates, emergency funds, and cash reserves, but moving forward as I transit into Barista FIRE, the key question has shifted from “How much cash do I have?” to “How long can my cashflow sustain my lifestyle?”.  In this sense, cash is a snapshot, while cashflow is the movie.

How This Realization Reshaped My Investment Strategy

2)     Embracing Dividend Investing for Predictable Income

Since I identified cashflow as the cornerstone of my semi-retirement plan, dividend investing naturally took center stage.  Unlike growth stocks or speculative assets, dividend-paying companies offer reliable, regular income, the very definition of financial oxygen in FIRE life.  Naysayers may counter by highlighting that dividends are not necessary reliable as dividend cuts may happen.  I do not disagree, however, my strategy, which eventually involves accumulating dividends collected in prior quarters amounting to about 1.5 times of annual expenses in a high yield savings account, before commencing monthly withdrawal from this account to cover part of my expenses during Barista FIRE, serves as a means to smoothen out my cashflow and ensure higher predictability in my cashflow.  More concrete sharing on this strategy may materialize next year when I commence my Barista FIRE journey with concrete data.

Since April last year, I began repositioning my portfolio, steadily decreasing exposure to REITs and shifting my funds to banks and other dividend paying companies as a form of diversifying my income streams.  Over time, my dividends crossed SGD 2K per month by the end of 2024, a psychologically and financially liberating milestone for myself.  This made me realized that every dollar in cash gives me a short runway, but every dollar in cashflow extends that runway indefinitely.

3)     Smoother Transition to Barista FIRE

As someone aiming to Barista FIRE next year, with plans to earn around $3,500 per month in part-time income (with part of it being CPF contribution), the importance of supplementary cashflow from investments cannot be overstated.

This buffer means:

• I can choose part-time work that aligns with my values, not just my financial needs.

• My stress levels about "running out of money" are drastically reduced.

• I can spend more time for myself and my family.

The Psychological Advantage of Cashflow

4)     Peace of Mind

There is something immensely calming about watching dividends hit your account regularly.  Even if it is “just” SGD 500 a month initially, it proves the system works.  It reassures you that your money is working as hard as (or harder than) you are.  I used to find comfort in a large emergency fund.  Now, I find even more comfort knowing that my portfolio generates more than SGD 2K every month, regardless of market sentiment.

5)     Optionality Without Sacrifice

With healthy cashflow, I do not need to obsess over timing the market or saving every spare dollar.  From what I experienced and witnessed within the community, lifestyle can be sustained or even enhanced without constantly depleting your capital.

That Said, Cash Still Has a Role

Let’s be clear, this is not a dismissal of cash.  It remains important for:

• Emergency funds (3–6 months expenses)

• Opportunity funds (for market dips)

• Peace of mind for unexpected needs

However the key difference now is: I do not feel the need to hoard cash anymore.  I feel more confident deploying it to assets that generate regular, sustainable income.

Final Thoughts: The Goal Is Freedom, and Cashflow Enables That

Looking back, my earlier blog post reflected someone still building the financial fortress.  Today, I am gradually stepping into it, though in phases.  And I now realize: the moat probably do not really lie on the cash pile, instead, it lies on the income stream.  Apparently I am not the only one who thinks this way, as shared in this video.

Cashflow has become the anchor of my Barista FIRE plan.  It allows me to work less, live more, and not be beholden to a paycheck or market cycles.

Before I transition into Barista FIRE, start building streams progressively.  Once I am ready to commence Barista FIRE, I believe I will thank myself for the streams constructed.  Let my portfolio flow into my life, not just sit on the sidelines.  Barista FIRE, here I come...!