One of my favorite topics to discuss with clients is helping them to understand their cash flow. What does “Cash Flow Planning” even mean?
In its simplest form, this is the process of tracking your income (where your money is coming from), and your expenses (where you are spending money). This helps to keep you on track for how you will ultimately meet your goals – or not. Another term we are more familiar with is “budgeting”.
While there are so many pillars of the financial planning process, I believe this is the foundation on which any good financial plan is built.
To familiarize you with some of the very important topics of financial planning, they are:
Financial Management and Budgeting/Cash Flow Planning
Investment Planning
Retirement Planning
Tax Planning
Risk Management and Insurance
Estate Planning
Education Planning
Behavioral Finance & Psychology
Throughout the course of the year, I’ll pick one topic and delve deeper into it and what it means for you and your family.
As you think of Cash Flow Planning, the phrase, “to know where you’re going, you have to know where you’ve been” comes to mind. It is a helpful perspective to understand where your money is coming from, where it’s going, and what are some of the reasons you spent on the discretionary (non essential) items you did (throwing in a bit of behavioral finance and psychology).
When you have assessed where your money is going, then you can start creating a plan around taking care of all the other areas of financial planning. It’s also a good exercise to understand how much you are able to save, and if you need to make any changes so that you can save more to be able to reach long term goals.
Many of the clients I work with are pleasantly surprised by the type of work we do together. They initially think I’ll tell them that they cannot spend on XYZ, but after we are working together, they learn that they can spend on what they choose, but being mindful of how much and how often.
While we touch on and implement the other areas of financial planning topics pertinent to them, we keep coming back to the Cash Flow portion of it. I have discovered that it is the secret sauce to making everything else work. As we free up more cash, we are able to help align with what’s most important to them. This tends to help them to have a renewed perspective of how they can achieve their goals, while still being able to enjoy the things that are important to them and their family.
I believe that my role as an advisor is not to help you to amass all you can, but to help you to navigate how to become a good steward of your resources, and to live a life that is within your values – without spending unnecessary monies on things that are not that important to you.
Benjamin Franklin says “Beware of little expenses. A small leak will sink a great ship”.
When clients truly become aware of their spending habits, often, they are able to shift their spending to align with their current and future goals, and tend to be able to see massive improvements in relatively short amounts of time. I believe in the concept of not trying to accomplish too much at once, and instead, choosing a path that you’re ready to tackle – and start moving in that direction. Especially because I don’t choose the path, the client is likely to stick with it and make meaningful changes.
As we start this new year, have you thought of some of the ways you’d like to align your use of your income better to help you to get you to your goals? Reach out to me if you are ready to take the overwhelm out of your financial life, in a way that empowers you to make wise decisions around your money.
