Cash Flow Dispersion Model, An application of Economic Order Quantity to Personal Finance
Abstract: This paper defines a cash flow dispersion model that minimizes liquid assets inventory whilst comfortably maintaining the ability to meet periodic demand. Migrating excess liquid asset inventory gained to long term asset inventory, thus increasing the amount of assets available to gain interest. Cumulative average estimates are used to account for variation in investment returns and cash flow habits. The resulting aggregate estimates of cash flows, liquid assets, long term assets and long term assets return percentage will be used to determine economic reorder point and order quantity. Dollars which can be considered equal to inventory will be migrated between long term and liquid asset balances based upon the economic order quantity and an intuitive investment threshold. This model can be used to understand a target cash flow state, providing target account values, triggers, order quantity kickstarting progression toward confident cash flow forecasting for an individual or corporation. With the expansion of deep learning algorithms and open banking, the ability to predict and measure performance against this model may be attainable in future study.
Model Example: https://docs.google.com/spreadsheets/d/19UFwlwobvhcvf8LA1VnPy0XWBtuGiWFGkX-fbACpsl4/edit?usp=sharing