Over the years, cash flow analysis has been the bane of many a financial planner, including me at one time. Advisors may try to get clients to budget too finely—almost like creating a Starbucks budget—or too broadly, without much (or maybe even any) analysis at all. Most advisors find that helping clients budget their discretionary spending is frustrating and fruitless, for both their clients and them. We agree! Cash flow analysis has long been a problem in search of a solution.
Problem: Cash Flow Analysis Is Complex and Frustrating
Cash flow analysis has never been easy. The phrase “income and expenses” sounds so simple, but the reality is ridiculously complex. Now more than ever—with direct deposit, automatic bill pay, credit cards, debit cards, and online payments—clients need a clear, simplified way of understanding their cash flow.
Simple means "without complexity," not "without effort." Cash flow analysis does take some effort, but if you structure it correctly, it's simple and rewarding.
Perhaps the greatest argument for cash flow analysis is that effective financial planning needs good communication among a client's family members, and good communication is impossible without a clear understanding of the family's cash flow. Most husband and wife arguments are about money. Understanding where the money is going promotes healthy conversations and, ultimately, better financial decisions.
Solution: Cash Flow Mapping Is Simple and Profitable
Our solution has grown out of my 21 years as a financial advisor. I created the tool about 15 years ago for my own family's use and then started using it with clients. Helping them understand how their cash flow worked led to a more trusting relationship, which made it easier for the client to implement my recommendations. It helped me retain clients and made client reviews more meaningful and profitable.
Cash Flow Mapping takes the ebbs and flows of income and expenses that your clients are already used to seeing and lays them out in a way that's logical, yet simple to understand. You walk your client through a series of simple screens, filling in various pieces of financial information. At the end you have a simple breakdown of income, fixed and variable expenses, long-term savings, and funds available for variable spending.
Yes, Cash Flow Mapping separates fixed and variable expenses. Every other cash flow tool I have seen combines them, which makes those expenses extremely hard to understand and control. As the saying goes, the devil is in the details.
The process both guides the immediate conversation and ends with a useful summary that helps shape your financial recommendations to the client. The focus, of course, is on planning long-term savings to reach long-term goals, but how do you get there without knowing where all the money is going?
It is entirely up to you how granular you get with your clients. We recommend solving for what's available for variable spending and letting the client work on the details themselves.
No understanding of a client's money situation will ever be perfect. Things can even change from meeting to meeting. Effective financial planning has to be fluid and dynamic. Cash Flow Mapping allows you to do that.
An Addition to Your Tool Kit
Cash Flow Mapping is not intended to change your selling process or replace the tools you are already using. I know those tools, and I use them myself. They do some things really well, but they fall short with cash flow analysis. I know this from my own experience, and from other advisors.
I asked several trusted colleagues to give me their honest opinions of this tool. I wanted to know if I was just too much in love with my own creation to see its flaws, or if Cash Flow Mapping really did fill a gap. The response was overwhelmingly: "Yes, it solves a problem that other tools do not."
The beauty of Cash Flow Mapping is in its simplicity. When you remove complexity, you can communicate in simplicity, and you can make a difference in people's lives.
The best way to evaluate Cash Flow Mapping is to register for a free trial and see for yourself. If you do that, I think you will like what you see. Thanks for your time!