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Cash Flow Planning – A Key to Financial Planning

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Are you cash flow savvy?   Managing your financial health is important, and one of the best ways to be fiscally fit is to expertly control what goes in and what goes out of your bank account on a monthly and annual basis.  One of the fundamental building blocks for wealth creation and long-term financial security is spending less than you earn.  Many people, whether of high or low income level, fall into the trap of over-spending and building debt.

True cash flow planning involves understanding the components that make up where money comes from, where it goes, and what choices are appropriate in relation to your overall financial plan. It is an active, ongoing process. Some of these components include:


Income can include salary, bonuses, hourly wages, self-employment income, and passive or investment income.

Fixed Expenses

These are expenses that do not change from period to period and often include rent, mortgage, utilities, and loan payments.

Discretionary Expenses

These expenses are not essential for the operation of a home or a business and more control can be exercised over these costs.


Make sure to consider the impact of taxes on your spending plan.  It is not what you make, but what you keep that counts. If you are self-employed, tax management is an even more critical aspect of planning.


This is the most important element to reaching your financial goals.  It is important to include monthly and annual savings, such as 401(k) contributions and deposits to cash reserves.

Whether you use an online program through your bank, a personal finance website such as Mint.com, or a personalized budget spreadsheet, the important thing is to get started.  Once you have chosen the method that works best for you, review your expenses and break them down by category.  As you work through this process, look for areas of waste (especially as you track your cash expenditures online) and ways to cut back (e.g., increasing insurance deductibles to decrease premiums, consolidating accounts or bundling services to reduce fees, and packing a lunch instead of eating in restaurants).

After the creation of the monthly cash flow plan, you are not done!

It is important to keep track of your income and expenses and record any changes in the plan. At the end of the year, evaluate the total annual variances for each category and make adjustments for the year ahead.  Do not beat yourself up if you did not stay precisely on plan.  Use this exercise as a learning experience to see which areas you can improve on in the year ahead in order to strengthen your overall financial plan.

Review your net worth statement with your advisor at the end of the each year and define what portion of the increase came from savings (as opposed to changes in asset values and debt reduction) to see if you are on track with long-term planning goals.  If you adhere to your cash flow plan, your net worth should reap the benefits!


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Andrea L. Blackwelder, CFP®, ChFC and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with Wisdom Wealth Strategies.

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