There are two common myths that can create limiting beliefs among people who could benefit from a cash flow plan, but assume it’s not for them. In this blog, we will debunk these myths.
First, let’s clarify who cash flow planning is for.
Cash flow planning is for anyone who has cash flow.
There are some people who may not benefit from a cash flow plan but, for most people, it can help you uncover opportunities to optimize your finances, whether you’re saving for future goals or looking to make the most of your money. Even if you don’t think you need a cash flow plan, it may be worth putting in 10-20 minutes of your time with a Certified Cash Flow Specialist to see if it may be of value to you. Many people discover they can find hundreds, if not thousands of dollars per month that they can redirect to the things that are most important to them.
Now, let’s bust these two myths.
Myth #1: Cash flow planning only frees up significant cash flow if you need to refinance.
This is a common misconception. It’s easy to see how many might assume there must be something major happening to find money, like refinancing. While refinancing debt might be the best thing for some people, there are many cash flow plans where the household has no debt, or they won’t benefit from any changes to their debt structure.
Only about 60% of cash flow plans show that a change in debt structure is possible or could be helpful. Only some of those will actually explore refining. Yet the average money found per household by the advisors we work with is about $2,000/mo. So a lot of money is freed up without touching debt.
If you do have any form of consumer debt like credit cards, secured or unsecured lines of credit, or high interest debt, it’s a good idea to review your options to manage it. Once a Certified Cash Flow Specialist has your financial profile, this is a quick and easy process to test the impact of financing changes. Try to avoid making default assumptions. Instead, evaluate the potential benefits or drawbacks so you can make informed decisions.
There are also several words in this area of finance that cause confusion, concern and avoidance. Consolidation is one of those words. Many people are motivated to get a smaller monthly payment, and sometimes a lower rate. Unfortunately, the smaller payment isn’t only caused by a lower rate, but also by stretching out the amortization. Taking a debt and paying it back over a longer time frame might reduce the monthly cost, but it will increase the total cost of debt repayment and the odds of carrying debt into retirement. The other issue is that the term debt consolidation is associated with specialized debt services or credit counseling for people who might be in significant trouble, or on the brink of bankruptcy. That’s not the same as changing your debt structure to maximize your cash flow.
Words matter. We prefer the term debt unification.
Debt unification: To combine debts into as few accounts as possible and concentrate repayment efforts to both simplify debt repayment, and reduce the total cost of debt over time.
Myth #2: Cash flow planning is only for people who are struggling financially
It’s believed by many that cash flow plans are only for people who are experiencing financial difficulties. But in reality, it’s valuable to anyone, regardless of if they already have good financial health.
A well-structured cash flow plan will help you gain a clearer picture of your financial landscape, no matter how stable you think you are. A cash flow plan can help you discover hidden opportunities to save and invest, so you can make the most out of the funds you already have. It also gives you a strategic way to reach financial goals, such as buying a house, funding your child’s education, or planning for a secure retirement. So even if you are not struggling financially, a cash flow plan can help you proactively manage your finances, make informed decisions, and continue to improve your financial health.
There are two types of people who may not benefit from a cash flow plan. First, low-income households that can’t afford to save or insure themselves no matter how much they try to control their spending. A cash flow plan cannot save people from the brink of bankruptcy, and cannot make up for extremely low incomes.
Second is the ultra-wealthy. People with multi-million-dollar annual incomes after tax, and $10 million + in investable assets don’t tend to be interested in a cash flow plan. It’s not that people with that kind of wealth cannot benefit from a cash flow plan. But they may think they don’t need to pay attention to their cash flow and debts. There are plenty of highly paid people who wish they hadn't thought that way. It doesn’t take more than a quick Google search to find countless rich and famous actors, athletes and business owners who’ve gone broke despite their success.
The truth is that a cash flow plan can help almost anyone make the most of their resources and find long-term financial stability. If you’re ready to explore how cash flow planning can benefit you, ask your advisor about the cash flow planning options they offer to help you achieve your financial goals and enhance your financial well-being. If your current advisor doesn’t offer this service, consider consulting with a Certified Cash Flow Specialist.
About CacheFlo
CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allow them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.
About working with a Certified Cash Flow Specialist (CCS)
Certified cash flow specialist professionals go through enhanced cash flow planning training program to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to help you get more life from your money.
Whether you’re planning for retirement, saving for major expenses, or aiming to build wealth, a cash flow specialist can offer solutions to help get you on track to meeting your goals. Check out the CCS directory.
