The ABCs of cash flow planning: E is for Evolution

Every Monday, we look at the ABCs of cash flow management.

E is for evolution

Cash flow planning is the next step for advisors. Offering the service is essential for the evolution of the financial services industry.

Though managing cash flow is basic, the financial services industry skipped over incorporating the service as it evolved. Managing personal spending and debt has been largely ignored over the past several decades.

Read: The ABCs of cash flow planning: D is for Detrimental

History of financial advice

In the early 1900s, pensions—then called old age insurance—begin to emerge more frequently from various established countries. But few people lived long enough to be able to collect government subsidies.

Then, the modern mutual fund became more commonplace in North America just as the 1920s revved up. The Great Depression occurred shortly after, followed by the introduction of Old Age Security in 1927 and Pierre Trudeau’s CPP in 1965.

Further, in the earlier part of the last century, single-income households were the norm. It was the 1960s before women were a regular part of the work force. As the cost of living rose, second incomes helped mitigate the effect on families. By the 1980s, the household debt-to-income ratio was only 66%, so cash flow planning wasn’t as crucial as it is today.

Read: The ABCs of cash flow planning

But now, the cost of living and people’s debt levels have climbed exponentially. And there are endless ways for consumers to overspend on discretionary items, which eats up gains brought by second household incomes.

So, though cash flow planning wasn’t essential to our clients financial futures before, we must evolve. Nowadays, the lack of a cash flow planning and budgeting could be detrimental to even wealthy families.

Continue on to letter F by reading The ABCs of cash flow planning: F is for Frequency.