Cash flow is the foundation of financial planning. You cannot control the overall economy and its direction but What you can control, however, is your personal financial situation and its overall health, direction, and vitality.
Controlling your own personal financial situation means no longer being at the mercy of the swings of the external economy, the rate of unemployment, or which party is in office. It means having a plan in place that lets you adjust for unforeseen circumstances while building towards a certain, defined goal. A starting point for taking control of your personal financial situation is understanding, optimising, and modelling your cash flow by creating stress-test events.
Tracking monthly cash flow, when combined with tracking your net worth, empowers you with your money. Moreover, it keeps you on track to reach your goals and gives you a full view of your financial picture. While the net worth statement provides you with the macro view, the cash flow statement provides you with the micro view of your financial well-being. Essentially, tracking monthly cash flow is knowing how much money comes in and how much money goes out on a monthly basis, and what-if scenarios create exit doors for you to prepare for life's various eventualities by having the right financial plans in place.
Key points of the first video: Cash flow modelling is about testing long-term scenarios, it provides a wonderful way to make informed financial decisions, it helps with decisions about tax, protection, investment structures, pensions, estate assets, asset allocation and priorities, it paints a picture of an individual’s or couples financial future, it can help identify areas of risk or shortfall, the cash flow model requires regular review and updating. You can’t manage what you don’t measure.
Key points of the second video: Goals based and cash flow modelling in action.