Spending and burn answer different questions
Net cash flow = Recurring income − Spending
Burn rate = max(0, −Net cash flow)
In the worked scenario, spending is $130,000 and income is $100,000. Cash therefore declines by $30,000 per month. Calling the entire $130,000 “burn” would ignore the $100,000 income offset.
Collect a usable baseline
Review several months of statements. Include required bills, everyday spending, and monthly equivalents of infrequent costs. Remove internal transfers, refunds, and one-off asset sales. Use net income after unavoidable taxes and work-related costs.
What burn rate can support
- estimate how quickly a reserve is shrinking;
- compare an expense cut with added recurring income;
- define an action threshold;
- translate a purchase into runway days.
What it cannot prove
A low burn rate is not resilient if income depends on one fragile client or cash is inaccessible. A positive flow does not mean every risk is insured. Pair the number with essential-spending levels, income concentration, debt terms, and insurance coverage.
The CFPB spending assessment recommends reviewing several months and including less frequent expenses. Burn rate is a monitoring tool, not a diagnosis or recommendation.