Spokane Journal of Business

Designing the future requires cash-flow planning

Nonsavers may be stuck in perpetual debt crisis

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Donald Morgan

Imagine building a house without blueprints or having any construction experience. The outcome is going to be unfortunate, if not downright dangerous.

The same is true about financial planning. Unless we don’t care what happens, we all ought to have a plan and that usually means hiring a planner.

Financial planning seems complicated and difficult. It is. But with a little time, effort, and knowledge, you can take the first steps toward financial freedom.

The essential first part of any valid financial plan is determining the cash flow of the family. Failure to get this part right sets the plan up for disaster.

So, what is cash flow? Simply put, it’s the amount of money you earn every month and the amount of money you spend every month. If you earn more than you spend, that’s a positive cash flow. If you’re in the hole and having to use credit cards or borrow money some other way, that’s negative cash flow.

A positive cash flow that has predictability can be used as a powerful financial tool. Negative cash flow is either an anomaly for the short term or a crisis. If you don’t know whether you have a positive or a negative cash flow, that has to be the first thing addressed.

The basic question for you and your family is: Are you savers or spenders?

Often, one member of the family is the saver, and the others are the spenders. This is a serious problem akin to having two steering wheels in the same car.

This is where the financial planner becomes the educator and the coach. Throughout a lifetime, savers become investors and allow compound growth to work for them. Spenders who don’t save, end up in a perpetual debt crisis. Meaning you’ve got 30 bucks left in your checking account until payday and the hot water heater just went out in icy January. Get out the credit card.

Living in a debt crisis environment is stressful.

So, what to do about it? There are a variety of free and low-cost consumer credit counseling programs available. Ultimately, unless a family of spenders changes their lifestyle and their spending habits, their ability to save and invest is crippled.

The savers can take advantage of financial planning and the related coaching and education that come as part of the package to design their future. There are no future facts, so the design of any financial plan has to include contingencies for the unexpected.

The planning process is divided into four sections.

Organization: This is where the family and the planner gather all of the documents, go through the interview process, and determine a snapshot of where the plan is today (and you already have a plan and it’s perfectly designed for what’s happening, it’s just not formalized).

Hopes and dreams: The second part of the process is to analyze and discuss what your goals and objectives are and then formalize the plan.

Following the plan: Implementing the plan often includes changes in how you’re financially structured and what your short-term and long-term objectives are.

Monitoring: This may well be the most important part of the financial plan. This is where the planner engages the family in coaching both toward doing the positive things that everyone has agreed to do and helping avoid making the mistakes that can be costly.

Finally, it’s critical to select the right financial planner for you and your family.

It’s the most important decision after the decision to start a plan. That should involve discussing your goals and interviewing with more than one potential planner. Most often, the recommendation is that you interview at least three individuals.

Trust your gut.  If you are uncomfortable, or if you don’t feel there’s good chemistry, or if your gut says this is the wrong person, trust that feeling. He may be the best planner in the city, but if you don’t trust him, if you don’t feel you can be open and honest, you will not get a good result.

Financial consultant Donald Morgan is an accredited investment fiduciary with Independent Wealth Connections, which offers security and advisory services through LPL Financial. He can be reached at 509.931.1088, or at Donald.morgan@independentwealthconnections.com

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