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Planning You Control Financial  

What is Cash Flow Based Planning and What Can It Do For Me?

Financial Progress Notes          

Cash Flow by Nick Youngson CC BY-SA 3.0

 Running a household follows   many of the same principles as   running a business.  Both have   cash coming in from various   sources, and cash outflows for   various purposes. Each will have   short term needs to complete,   and long term goals to save for.   However, both want to end up   with positive (and preferably   growing) net cash flow.

 Traditional planning approaches  have often been “goal based.”  This  means you determine a lump sum objective ( ie. house, education), or future income need based on general parameters, and then make financial calculations on what is necessary in funds and returns to accomplish it.  However, less thought is given to the actual ongoing cash flows to determine if these goals are actually feasible.  Whether we like it or not, don’t we actually live daily, weekly, and monthly on the cash coming in, and the cash going out?  One family making $200,000 per year may live paycheck to paycheck. However, another family with similar finances may make half that amount, live within their means, and achieve their retirement goals.

What if you could actually view, in an easily understandable format, your own cash flow statement. You could see the big picture, as well as pick out a particular inflow or outflow to get more detail. Some might fear what they will see, but technology today allows you to view what is likely to happen, and take control of specific elements to achieve better results. Now, instead of only making a calculation to a goal, these approaches can be merged to show what is happening using your real cash flows.  These are the components that make up your cash flow.

Your Personal Cash Flow Statement

The net cash flow on this statement will indicate your personal financial health. It will include:

Cash Inflows:

Salaries or Business Income

Savings Account Interest

Dividends from Your Investments

Capital Gains Received from Stock and Bond Sales

Rental Property Income

Proceeds from Assets (Cars, Houses, Artwork)

In Retirement: Pensions, Retirement Plans, Social Security

Cash Outflows:

Mortgage Payments or Rents


Grocery Expenses


Insurances – All Types

Education-Tuition, Expenses

Entertainment (Restaurants, Movies, Theater, Concerts)



Technology That May Help You Live Your Plan

 Today, planning programs are capable of account aggregation where you can connect and view your actual account balances, and cash flows from bank accounts, debit cards, and credit cards within your plan. You don’t have to manually track your spending, as much of this is now automated.

 You can stay ahead of the game by tracking the effect of taxes and making adjustments throughout the year. Projections of a pro-forma tax return over the years allows you to be proactive during the year versus deflated each April. You can test the effect of tax strategies, such as the impact of partial Roth conversions on future retirement income.

*    A meaningful plan can be created with your real cash flows, and alternative planning situations can be tested, to gauge possible improvements or perhaps get your plans back on track.

 The reality behind the concept of living your plan is that planning, as with living itself, is a process and not the culmination of a one time event. Today, valuations can be updated daily, changes in the plan can be assimilated at any point, and variables such as inflation, down markets, the timing and level of social security distributions, and even longevity can be risk tested to assess the strength of your plan.

When you can see the components of your cash flow and the progress of your plan with realistic numbers, it enables better decision making. With a modern planning platform and guidance, you have the means to plan for lifetime income and wealth building.

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