Mastering Cash Flow: Avoid These Common Mistakes

Welcome back to another episode of We're Talking Money. I'm Dustin Hocken, this is Phil Clark. Cash flow is so important to financial planning, and that's why it's one of our 10 wealth management elements, because if we don't get this one right, other pieces of the plan are likely to fail. If you haven't been on our website, go to www.omnistarfinancial.com and look at our 10 wealth management elements. This is proprietary to our firm and it's the foundation of all planning we do with each client.

You really can't plan if you don't know about your cash flow, and that means the inflows and the outflows. Now, the most confusing thing here is people often think of cash flow and budget as being interchangeable, but they're not interchangeable. A budget is used to track expenses on one side of the ledger, where cash flow is looking at inflows and outflows. Without the cash flow, we can't actually tell what we have left over, and if we only have a budget, we're just trying to live within our means and try to minimize our spending as much as possible. While people probably hate the word, budget is really a way to create a limiting mindset around your spending. Cash flow, on the other hand, when you know everything that's coming in and going out, now you can properly allocate to create your budget.

Every successful business, they do something called cash flow planning. They have Financial State they're looking at inflows and outflows so that they know exactly how the pulse of that business is operating every day, and without it you're leaving yourself in the dark. If a well-run business can use this cash flow type planning and financial statements to help them be more successful, why wouldn't individuals use it?

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Everyone needs to be mindful of their cash flow statement if three stag of Life. The accumulation phase: you're just getting started, maybe your income's not quite as high as it will be, you have more debt. Cash flow is important to make sure that you pay down those debts and save whatever little money you may have left.

Yeah, and to your point, Dustin, that accumulation phase, there's another reason why it's so important to get it right from the beginning, to start early, because midlife, that's when people tend to make career changes. They might decide they want a little different something out of life, and if you go through a rough patch, if you didn't get the accumulation phase started correctly, you might find yourself in a real situation that may be more difficult than it should be because you didn't save well enough.

Second, in the acceleration phase, now all your hard work is starting to pay off. You're making more money, you're paying down debt, you're able to save a little bit. These are the golden years. You're earning money, you want to take advantage of those. And lastly, the distribution phase, likely the most complicated piece of your financial planning journey. A misstep here can result in unnecessary tax and a lot of lost opportunity. More importantly, in this phase there are no do-overs. You have to get it right. You can save a lot, you can build a big war chest of money, if you're not doing that efficiently, if you haven't built it the right way, all of those taxes and they can really make a plan look like it really wasn't a well-oiled machine.

We took that into consideration when we were building and developing and deciding on softwares or technologies to use. We wanted something that allows us to highlight the importance of cash flow, and that's exactly what we ended up with many, many years ago, and today it continues to evolve. With each client, we link bank accounts, credit cards and any other accounts that may have transactions throughout the month. This allows the software to look at inflows and outflows, so we'll always have a real-time cash flow statement. If your wealth management team isn't using software like this, or if they're not digging deep into the cash flow like we are, you likely have some blind spots.

Cash flow projections allow us to gain a critical understanding of future expenses. We can look at kids' education, large purchases. We know what's coming up, so we can plan for those in great detail. We also look at whether income and expenses are being managed properly, not only today but throughout your life as you build towards retirement and in retirement. This is critical, because if cash flow doesn't look good, sometimes it's not as easy to feel, and if you're not actually looking at the statement, you bite me making mistakes, and if mistakes are being made, adjustments also need to be made. Every day there's a distraction around every turn. If you're not looking at that cash flow statement, you're distracted, all of a sudden you realize you run off the road, there may not be time to fix it.

If you haven't reviewed your cash flow statement recently, or maybe you just don't have one, the team at OmniStar Financial Group is here to help. We'll work with you to build a cash flow statement, dig into it, and we'll help illuminate any of the blind spots. You can reach us at www.omnistarfinancial.com. The link will be in the description below.

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