Author – Roopa Sudharshan
As financial planners we are often asked, when offering a cash flow planning report to clients grappling with some of their biggest financial commitments, whether it can improve their finances. Such commitments could include buying a first home, saving for the education needs of children, planning retirement, during the divorce process, on changing career, passing on assets to future generations or coping with bereavement in later life. Whatever your profession may be, you will always want to keep your finances organized and look for new ways to save money and build your wealth. In order to do so, planning your budget and your cash flow is essential. An important aspect of budgeting is determining where you can save money and how you will meet your monthly expenses in advance. The goal of cash flow for a business owner is to balance costs with income, whereas for an individual, it is to keep to a budget and save for the future.
What is Cash Flow Planning?
Simply put, cash flow refers to the movement of cash and assets. Using cash flow planning, you will be able to weigh your assets, income, and expenses for the present and for the future. By doing so, you will be able to analyze how best to divide your income between spending, saving and investing to meet our rainy day requirements and futuristic goals. This enhances your ability to anticipate situations and prepare for them. It informs the investor how likely they may achieve their goals or whether they need to consider trade-offs, such as saving a little more, changing investment risk, altering the timeframe.
In what ways can Cash Flow planning help an individual?
A cashflow plan can identify the risks which may prevent or delay some goals being achieved. These include ill health, loss of employment, death of a loved one, investments falling in value, living costs rising, or changes in taxation. Many of these risks can be managed so that if a misfortune strikes, there is a plan B to cushion the impact. Planning for these risks does not make them more likely to happen, it just means you are more prepared. Thus, a cash flow plan, forecasts, and budgeting are key to avoid financial pitfalls, and debt traps, and inturn focuses on Financial Stability. Start by following these steps.
1.Outline your goals – If you want to plan for financial goals such as buying your dream home, a car, a vacation abroad, child’s education and their marriage needs and your retirement amongst a host of others; prudent financial planning can come to your recourse. Through experience we can say that many vie for all the aforementioned goals, but lack of financial focus and / or procrastination on executing the financial plan drawn, which in turn hinders accomplishment of financial goals set. Goals can be both short-term and long-term. Making your goals clear, whether immediate or future, helps you to plan towards them. By setting goals, you’ll gain direction, stay motivated and focused on what’s important and prioritize accordingly.
2. Aim for more goals at one time – A useful way of making goals more powerful is to set SMART goals.
SMART Stands for :
S – Goals to be Specific
M – Measurable
A – Attainable
R- Relevant
T – Time-Bound
We should plan on having multiple goals set at one time. We cannot be under an assumption that we have enough and more time to plan for other goals. . Even if the short-term goal is accomplished, Medium term and retirement plan has been slowed down by a few years without planning and investing, in the bargain we lost out on time and will take longer time to grow and accrue. Give your money the time, Value & respect it deserves to help you start reaping dividends at various life stages. Tip for setting goals – one should restrict it to clearly maximum 4-5 goals. Having too many, makes it look too stressful and unachievable.
3. Determine your priorities – When you have several goals, give each a priority. This helps you to avoid feeling overwhelmed by having too many goals, and helps to direct your attention to the most important ones. Remember too that your goals will change as time goes on. Adjust them regularly to reflect growth in your knowledge and experience, and if goals do not hold any attraction any longer, consider letting them go.
Goal setting helps you to Decide what you want to achieve in your life. It Separates what’s important from what’s irrelevant, or a distraction and keeps you motivated by building your self-confidence, based on successful achievement of goals.
Tip would be to set your lifetime goals first. Then, set a five-year plan of smaller goals that you need to complete if you are to reach your lifetime plan. Keep the process going by regularly reviewing and updating your goals. And remember to take time to enjoy the satisfaction of achieving your goals when you do so.If you don’t already set goals, do so, starting now. As you make this technique part of your life, you’ll find your career accelerating, and you’ll wonder how you did without it!
When going to the shops in your neighbourhood you do not need a map. If travelling further afield, to somewhere never visited before, few of us would venture out without a map and some pre planning. The future is somewhere you have never been before. Cashflow planning is that Navigator which guides and updates you on your journey. If there are delays on the way it can find another path. Combined with regulated advice it can help you arrive at your destination more smoothly.