Cash flow is king. Our success or failure depends on how we direct it and the evidence indicates that we’re not doing a good job.
Even high income earners with significant assets are not reaching their financial goals at the level that their incomes should allow.
There’s often more month left at the end of the money and so many of the assets seem to come attached with their own specific debt.
I dealt with this whole issue concisely during a series of seminars several years ago. I’d start by baiting the crowd with a slide entitled “The Secret to Financial Success.”
I’d leave attendees hanging for a bit until they had pen and paper ready to take note of the sage wisdom I was about to impart and then I’d reveal the simple adage: “Spend less than you earn.”
After a very pregnant pause they’d finally start to chuckle at the simplicity of my solution to a serious First World problem: Lack of a cash flow plan.
In hindsight, my advice may have come across a bit arrogant. The fact is that few of us took the course on how to successfully realize our financial goals! Even the various financial planning designations fall short in providing a method of properly managing cash flow.
Combine that with a high cost of living and outrageous real estate prices and it becomes very difficult to direct money toward our goals. Most of us have tried to follow budgets, but to no avail — they are way too complicated to live by in a very complex world.
Budgets are great for vacations, home renovations, or projects with defined time frames, but they fail to deal with the unpredictable variability of life!
We know what mortgage payments, taxes, utilities, and other commitments look like but we can come absolutely unglued when we start paying for everything else — especially expenses that give us pleasure!
I believe financial plans that rely on complex budgets are usually doomed to fail because they do not address behaviour.
Honestly, how do you feel when you labour tirelessly to create a budget that limits your freedom! What is required is a methodology that redefines freedom. A little hint here — easy access to money and shopping therapy are not freedom — they are a symptom!
We’re adults and I believe we can follow plans if we know where they are taking us. When your cash flow plan includes a systematic way of reducing corrosive debt and diverting money toward your important goals, you will absolutely get more life from the money you have.
The opinions expressed are those of Richard Vetter, BA, CFP, CLU, ChFC. Vetter is a certified financial planner and owner of WealthSmart Financial Group in Richmond.
