Getting the Year Started
"Discipline Equals Freedom"
- Jocko Willink
Winter is a great time to review and update our Cash Strategy. The foundation of your financial plan is built on an understanding of cash flows. Without it, other financial advice simply cannot be meaningfully provided in the detail you deserve.
Ideas, Recommendations and To-Dos for January
Review and update your cash strategy. A cash strategy is built by understanding, reviewing and tracking:
- Planned savings (i.e contributions to savings accounts, retirement, brokerage)
- Planned expenses (i.e. vacation, car, moving, career change, home improvement)
- Fixed expenses (i.e. mortgage/rent, health insurance, utilities, groceries)
- Discretionary expenses (i.e. entertainment, hobbies, subscriptions, dining out)
Why a Cash Strategy is Important
The cornerstone of your financial plan is built on your cash strategy and spending plan. A cash strategy is built to help us understand how we are using our income to serve our needs, wants, goals, life experiences and aspirations. To get an understanding of where you are today, it can be helpful to reflect on where you have been and what you are doing now.
- What does money mean to you?
- Where did you save money and how much did you save?
- How did you spend your money the last 90 days?
- What spending brought you the most joy?
- What spending do you see value?
- What spending seemed wasteful or not inline with what you value?
- How does your rate of savings and investing make you feel? Is it enough to meet your savings goal?
The 70% rule
Building a cash strategy can be very intimidating. Who has time to chase down, review and categorize all of their spending? To get started, focus on the spending that is regular or fixed. (Mortgage/rent, insurance, groceries, utilities, transportation, childcare)
How can you get started?
1) Use eMoney (which is available to all clients) to help you track, organize and review your spending. Connect your bank accounts and credit cards. Add your fixed expenses to the Organizer.
(need help with eMoney, schedule a meeting)
2) Set a time to review spending once a week for 15 - 20 minutes. Ask yourself the above questions.
3) Categorize your discretionary spending in 7-12 categories. (more than 12 tends to be overwhelming and emotionally draining)
Completing your Cash Strategy
4) Start documenting / building a spending plan in eMoney, click on the Organizer tab. Put your planned spending into the Organizer Worksheet. If you are a financial planning client, we will do this for you.
5) Schedule time to review and update your spending plan with Kit or Katie. We should do this at least once per year. As your accountability partners we are here to help you make the most of your cash strategy.
Questions we can answer once we have a Cash Strategy:
- How much cash you should maintain to support and protect your financial plan.
- Where to position cash for a higher interest rate.
- How to position cash to support and encourage savings behavior.
- How much money do you have to invest toward future goals.
- Where and how you should put excess funds to best serve your financial plan.
- How and where to distribute or borrow funds efficiently to meet obligations / needs.
First 30 days - Don't worry about being perfect or doing this perfectly. Focus on establishing the habit.
Additional Benefits of a Cash Strategy
Having a Cash Strategy in place will further inform and empower us to have a detailed conversation about employee benefits and insurance selection. When we know how much income your financial plan needs to be sustainable, we can better evaluate how much risk we need to transfer to an insurance company. Reducing the chance we buy too much or too little coverage and helping us model out more effectively how a loss might impact or delay our plans.
We hope you found this email helpful as you make plans for 2022. If we can be of additional support with your Cash Plan today or in the near future.
Click here to schedule a meeting.
Kit Lancaster CFP, AWMA