The Three Cash-Flow Regimes

Before any optimization, separate household outflows into the three regimes:

Deterministic recurring –- the cash calendar.

A payment calendar shows each known bill on its known date. The operating-cash balance must cover the next four to six weeks at any moment. No optimization needed: load the balance, draw it down, refill on payday. The Miller-Orr model adds nothing here.

Known lumps –- the sinking fund.

For each known large payment (semiannual property tax, quarterly estimated tax, annual tuition, expected capital call), match a T-bill or short bond to the due date. The instrument matures into cash the week before the payment, earning state-tax-exempt yield in the interim. Again, no Miller-Orr.

Stochastic residual –- the Miller-Orr layer.

The genuinely unpredictable component: irregular distributions from an LLC, surprise tax assessments, a vet bill, an urgent home repair, an unplanned trip. Here cash flow is unpredictable in timing and amount, and the model’s framework applies cleanly.