Budgeting vs. Cash Flow Planning: A Fresh Approach to Managing Your Money

Tara Tennant

In the face of rising interest rates and inflation, having a solid cash flow plan has never been more crucial. That’s why over the past year we have been diving deep into this subject matter, and we’re excited to share our insights with you. In this blog post, we’ll explore the key differences between cash flow planning and traditional budgeting, and look at how a personalized cash flow plan can empower you to take control of your financial future. So, let’s dive in and discover a fresh approach to managing your money that focuses on your behavior and sets you up for long-term success.

Cash Flow Planning

One of the core values our team holds dear is educating the families we work with. In order to do that we need to continually update our own education. Over this last year, our team has spent a lot of time working on a subject matter that often gets overlooked – cash flow planning.

Given the current situation with rising interest rates and rising inflation, it’s never been more important to have a good cash flow plan. The solution? We’ve invested in software to help our clients do just that. This software is very exciting for our team because it doesn’t focus on the “old” way of doing things (aka budgeting) and instead focuses on our behavior. Let us explain.

Cash Flow Plan vs. Budgeting

A cash flow plan and a budget may seem the same on the outside, but they are very different. A budget is typically created by researching our past spending habits, estimating what we’re going to spend in the future, and then plugging those numbers into a spreadsheet. Then we go about trying to spend certain amounts on certain things, holding on to receipts and promising ourselves that we’ll write it all down when we get home.

For most people, trying to keep all of this straight is time-consuming and mentally exhausting. We try our best but just like that New Year’s resolution to go to the gym every week, we eventually get busy doing other things and we give up. If this sounds like you, trust us, you are not alone.

But there is hope! Cash flow planning is not about what you can’t have or getting you to manage multiple categories, envelopes, or jars. Instead, cash flow planning allows you to set yourself up for success ahead of time so that you can focus on things you can control.

How To Set Up A Cash Flow Plan

How do we do it? Well, first we consider your income, expenses, your short-term and long-term savings goals, and then we calculate a safe “spendable” amount. This allows you to set aside an amount that you can spend in a week, rather than attempting to manage expenses across multiple areas based on an estimate of what you think you’ve spent in the past. When you do this you free up valuable mental resources and are able to focus on the goals you’ve set for yourself.

Another essential factor in cash flow planning is debt management. We recognize how easy it is to take on additional debt, especially in today’s economic environment. We understand, and we’re here to help. A holistic cash flow plan can help you manage paying down that debt as well as save for future needs.

We know that a good retirement plan can’t come to fruition if it’s not accompanied by a good cash flow plan. We need to be able to manage debt just as well as we manage our assets, or one side of the balance sheet will begin to erode the other and we want to make sure that your savings are protected.

‍How do you know if you need a cash flow plan?

If one of these statements is true for you, it’s time to reach out to our team:

10. Your retirement plan isn’t fully funded, or you’re not sure that you’ll have enough to retire.

9. You’ve calculated your retirement spending as a percentage of your current income, rather than actual estimated expenses.

8. You don’t feel that you can afford the insurance you need to protect your income and pay off your debts should something happen to you.

7. You haven’t maxed out your TFSA.

6. You can’t afford to splurge just for fun.

5. You took a car loan that was more than 48 months because you couldn’t afford to buy it over a shorter term, or you just decided to lease instead.

4. You have kids but haven’t started a Registered Education Savings Plan, or you have an RESP, but it’s not maxed out.

3. You don’t know what year you’ll be entirely debt-free.

2. You’ve had to withdraw money from your long-term investments or stopped regular contributions towards your retirement to pay for an emergency or something that isn’t retirement.

And #1 – You don’t have a cash flow plan!

Why Does Cash Flow Planning Help You Manage Your Money?

Cash flow planning makes managing your money easy because it was designed around human behaviour and it bridges the gap between knowing and doing. Through the process, you’ll learn how to automate your financial environment by making a few simple changes. This will make it easier for you to stay on track. A lot of the people who go through the process find about $1000 / month that can be freed up to help them achieve their goals.

Now, keep in mind that just because you have a shiny new cash flow plan, it doesn’t automatically mean that you’ll have free-flowing cash. Sometimes when we work through the process, we find that you have a very small amount that can actually be “freed” up. That’s ok, and it’s not a reason to panic. It just means that you might have to make more significant changes. It’s better to know this is the case than to continue on for years, slowly digging in deeper because no amount of money management can help when you’re consistently over-extended. The good news is that we can find this out pretty quickly and make the adjustment necessary to get you back on track.

Summing It Up

We know through years of working with clients that people are financially healthier (and a lot happier!) when they feel in control of their financial situation – and this starts with a cash flow plan. We also know that this is still an area that is commonly overlooked, especially when cash flow is good. Unfortunately, it’s usually when there’s been an emergency, an unplanned expense, or a loss of income that clients to come to us for help.

Cash flow planning is a powerful tool that can transform your financial life. By shifting the focus from strict budgeting to understanding and modifying your behavior, you can create a sustainable plan that aligns with your goals and values. Whether you’re striving for a comfortable retirement, looking to manage debt effectively, or simply seeking financial peace of mind, a holistic cash flow plan is the key to success.

Remember, it’s never too late to start. If any of the signs we mentioned above resonate with you, don’t hesitate to reach out to us. We’re here to guide you through the process. Together, let’s take the first step towards increased financial confidence and a brighter future. Get in touch with us today, and let’s get started!