The ABCs of cash flow planning

Some people say managing your cash flow is as simple as spending less than you make. But cash flow planning is about a lot more than simple math.

Here’s the good news: all you need to start managing your cash flow is a written plan.

A IS FOR AUTHENTICITY

No matter what your income is, you can follow a cash flow plan. In fact, this method of financial management is highly efficient even for those who have high incomes.

Often, even advisors who are helping clients through the process commit to their own cash flow management plans. That way, they can answer clients’ questions and understand people’s challenges throughout the process.

B IS FOR BEHAVIOUR

Cash flow planning involves doing math. But when it comes to getting the life you want from the money you have, behaviour is also key.

Without changes in behaviour, a budget will do little good. The same goes for tracking spending, since that only involves recording history over the long-term. If done properly, cash flow planning can involve subtly but effectively altering counter-productive spending habits.

So, you have to be open to changing your purchasing habits, and then you’ll see significant results with in the first two to three months of starting cash flow planning.

C IS FOR COMMITMENT

You might think debt consolidation would help with cash flow planning. But consolidation gets most people thinking about aiming for lower monthly payments, which actually makes debts cost more.

In order to make a cash flow plan work, you must be completely committed, and choose goals that are specific to your needs and situation.

You can choose a goal such as becoming debt free, but consider this: often, people have no emotional attachment to becoming debt-free because reaching that goal takes so long to achieve. As a result, they’re rarely able to permanently and effectively curb shorter-term or daily spending habits.

To cement commitment to cash flow planning, also think about why you want to become debt-free. For example, you may want to be able to afford to work four days a week, or may want to retire early. It helps to set both short- and long-term goals, and to make cash flow planning a regular part of financial planning.

Stephanie Holmes-Winton is CEO of The Money Finder and creator of the Cash Flow Planning Designation, The Certified Cash Flow Specialist™ Designation. The CCS™ is a program for financial professionals designed to enable their clients to harness the power of Cash Flow Planning and make the most out of the money they already have. Holmes-Winton is the author of two books on spending and debt, and regularly appears on television and in print.