As we mentioned in the blog last week, there are six areas that should always be covered in a comprehensive financial plan.  Those six parts are:

  1. Cash Flow
  2. Risk Management
  3. Tax Planning
  4. Retirement Planning
  5. Investments
  6. Estate Planning

Over the next 6 weeks, we’re going to dig into each of these to cover why they must be included in a comprehensive financial plan. Today, we’re starting with cash flow because that is the core. The whole goal of financial planning is to visualize where you want to be in the future and determine the best strategies and ways to achieve those goals. If you’re spending more than you’re making, then it’s going to be impossible to make progress.

We begin by looking over the last few months of your cash flow to review what’s come in and what’s gone out. We then use this information to create a base spending plan. I don’t like to call it a budget because many people consider budget to be a bad word. They’ve been taught that budgeting is restrictive and always tells you no.

With a spending plan, the goal is to give you the freedom to spend money in the way that best aligns with your goals and values. If one of your priorities is retiring early, then we choose to allocate more funds to retirement savings. If you want to make sure your kids don’t come out of college with the same amount of student loans as you did, then we save more for college. If you’re willing to provide more experiences for your family today but work a little longer, then we move funds there. You’ll probably get sick of hearing me say this, but financial planning is all about prioritization. Your cash flow should reflect these priorities.

Once you’ve created a spending plan for your cash flow, tracking and accountability is key. I’m often asked what tool is best to help with tracking and my answer is the one that works for you. We have some clients who love a good spreadsheet. It’s tried and true and they know it works for them. Others have come to us using Quicken, Mint, or another digital tool. Our financial planning software has a feature to track this as well. My advice here is to find what works for you and stick with it.

Just like in other areas of life, accountability will play a massive role in keeping you on track. If you don’t have this, it’s so easy to make that exception that turns into a regular expense and derails your progress. Money can be a huge stressor in marriages or relationships, but your spouse or partner should be the person to help you with this since you’re doing life together each day. We are here to help with this as well.

To wrap this up, the whole goal of cash flow planning is to create enough margin each month where you can enjoy your life today but also make sufficient progress towards your financial goals.