The ABCs of cash flow planning: Q is for Quantifiable

Each week, we look at the ABCs of cash flow management.

Q is for Quantifiable

The great thing about cash flow planning is its results are easily quantifiable.

That’s because you encourage clients to set multiple short-term goals when helping them manage their spending and debts. As they achieve those goals (they may build emergency funds or go on long-awaited vacations), you’re able to track their progress and show them their hard work is paying off.

Read: Short-term goals increase planning success

You also help clients develop actions plans that spell out the steps they need to follow to reach their goals. They may not see value in the exercise because written plans haven’t been practical or worked for them before, so explain that following specific steps will help them stay on track.

Read: Clients need written financial plans

The problem is there’s been no standard definition of what financial plans should include. Also, traditional financial planning revolves around long-term savings estimations and investment goals, which can easily be altered by factors such as inflation, market performance and major life events.

Read:

• Markets unsteady this year
• Help a wealthy client who’s lost her job

Here are three reasons cash flow planning results are easier to predict and quantify:

• Money found. At the start of the cash flow planning process, your client will see exactly how much money per month he can redirect toward the life he wants. Show him how he can get ahead in the near term, as well as what he can achieve in the next 10 years, by harnessing inefficient interest and wasted money. For example, he and his spouse may make $8,500 per month but also have about $300,000 of total household debt. If you find they’re spending more than they make prior to developing a cash flow plan, you can help them realize a value of $150,000 of found money over the next seven to 10 years by helping the couple reorganize debts and adjust spending. When their cash flow plan is in place, they’ll find they can save about $1,700 more per month; 30% of that can go toward debt principal; 40% can go toward long-term investments and savings; and 30% can go toward protecting their plan.
• More enticing goals. Unlike traditional financial planning, cash flow management allows your client to also focus on attaining his shorter-term, more exciting goals. Long-term goals are important, but he may be more motivated to save if he’s looking forward to an upcoming trip to Mexico.
• Behavioural changes. Cash flow planning encourages your client to review his bad habits and change his behaviour. If he’s successful, he’ll see he’s headed toward long-term progress.

If you can quantify the value of financial planning, clients will be driven and excited to work with you.

Continue on to letter R.

Read:

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Keep clients devoted