It is forgivable if you see a cash flow plan and a budget as the same. But an effective cash flow plan is one of the most valuable tools a business owner can use to organize and clarify their financial future or anyone for that matter.
Why You Need a Cash Flow Plan
Having an effective cash flow plan in place can mean a world of difference in reaching your financial goals.
A strict budget is like a strict diet. When you go over budget, you feel like you have failed. Often being on a budget is associated with feelings of negativity.
When we use a budget to save, we tend to spend what we think we need to and save whatever is left over at the end.
The problem with managing our expenses this way is we’re not prioritizing our goals and future ambitions. Our goals get us excited, so when we link these feelings of excitement back to our spending, it helps motivate us to get further ahead.
(Speaking of financial goals, don’t miss this post next: Defining Your Financial Goals Beyond “Make More Money”)
A cash flow plan empowers us to be intentional about our spending. It considers our behaviours around money, and instead of looking at our goals as something nice to have, we make our goals achievable by putting them first.
Organizing Your Cash Flow Plan
When we get together to build your innovative cash flow plan, we organize your money into three pots:
- Committed expenses: These are expenses like bills and rent that rarely change from month to month. They aren’t always a fixed amount. Instead, they can fluctuate month to month like your hydro bill. But no matter what happens that month, they have to be paid.
- Weekly spendable expenses: This is the money we allow ourselves to socialize, enjoy our free time, and pursue our interests. We work hard for our money, so it’s okay to spend it. But remember, spendable expenses are closely linked to our emotions. That’s why it’s often easy to overspend (we all remember that impulse purchase we’ve made in the past to make ourselves feel better!)
- Goals fund: This can be put towards reaching your life goals and planning your financial future. It could be short-term like a dream vacation or long-term like buying your perfect home.
(Here are three steps for a successful cash flow plan.)
Each of these three pots in your cash flow plan is carefully curated to work together for reaching your more significant financial goals. From having money set aside “for a rainy day” to have the emergency funds you need, money to travel, money to give your children, whatever it is, these pots account for all of it. You can customize them to your specific goals. But first, you need to be crystal clear about what those goals are.
Get the Clarity You Need for a Brighter Financial Future
The first step for business owners is to get clear about what they’re spending and plan for an exciting future. When we track our committed and spendable expenses, we can be clear on the money we put towards living the life we always wanted. That’s why goal setting is such a big part of our financial planning process.
If you want to learn how to clarify your cash flow plan to get closer to achieving your goals, book a call.
Watch the video on this strategy
Did you learn a lot from this post? Here are three more to read next:
- Take Advantage of Your Corporate Structure
- Growing An Investment Portfolio Inside Of Your Corporation
- Life Insurance for Business Owners: Why It’s Time to Revisit Your Policy
This post about your cash flow plan was first published in 2020, but we updated it in 2021 just for you.