In this video, Joe Goldy from Highland Financial Advisors discusses the significance of cash flow as a critical tool in financial planning, emphasizing its universal application for all clients, particularly divorcees. He distinguishes cash flow from a budget and outlines its three main benefits: providing peace of mind by showing clear income and expenses, being a reusable tool for various financial scenarios, and aiding divorcees in accurately filling out the Case Information Statement.
Introduction to Joe Goldy and Highland Financial Advisors
Hi, I'm Joe Goldy, a Certified Financial Planner from Highland Financial Advisors. Today, I want to talk to you about possibly one of the most important financial planning tools that we use with clients. It's so important that we use it with every single client that comes to Highland Financial Advisors.
Encouragement to Subscribe and Stay Updated
Before I get into the tool itself, if this is the first time you're watching one of our videos, I encourage you to hit the Subscribe link down below. And, if you hit the little bell, you'll get notified every time we release a video just like this one.
Deep Dive into the Cash Flow Tool
The Significance of Cash Flow in Financial Planning
So, let's get into the tool. The tool that we're going to talk about today is the cash flow. The cash flow is probably one of the most important tools that we use in financial planning. It's so important that every single client that comes to work at Highland we use this tool with. And it's especially important for divorcees, which I'll get to at the end.
Explaining What Cash Flow Is and Isn't
The cash flow tool, I want to talk a little bit about what it is and what it isn't. The cash flow, very simply, is listing all of your income sources, which could be employment income, Social Security, pensions, or maybe rental income, and then all of your expenses. We usually break those expenses out either monthly or annually, but we keep it very simple. That's really important with the cash flow. At the end, again, very simply, it's telling you if there is a surplus or a deficit for your monthly income and expenses.
What the cash flow isn't is a budget. A budget tells you how much you can spend each month. The reason most people start using a budget and then stop is that almost invariably, everybody goes over budget on certain categories. They get discouraged and stop using it. Cash flow is very different. It's simply telling you what's coming in and what's going out, and how much is left over, if any, or how much if there's a deficit. It's not really there to tell you how much to spend; it's there to educate you on the different categories and help us with our financial planning.
The Threefold Benefits of the Cash Flow Statement
1. Providing Peace of Mind
I feel like there are really three benefits to the cash flow statement. The first is that it provides peace of mind. The second is that it's reusable. And the third is that, for my clients who may be going through a divorce, it helps them tremendously with filling out the Case Information Statement, or CIS.
I'll go into more detail on that a little bit later. But that first benefit, peace of mind, what does that really mean? Peace of mind is for clients that I work with, especially divorcees or maybe somebody that just lost their spouse. It's the unknown that scares them the most. It's that uncertainty about their future. Having an accurate cash flow so that people can see exactly how much income is coming in each month and how much is going out in expenses provides tremendous peace of mind. I've heard this over and over again from clients directly: that one of the best exercises that they go through with us is filling out their cash flow and making sure that it's accurate. Then, they know exactly where they stand.
People do very well when they know what the challenge is ahead of them and how to tackle it. It's the unknown that scares them so much. So, just kind of having that peace of mind and clarity about the future is really what clients are looking for. That's exactly what the cash flow provides.
2. Reusability of the Cash Flow Statement
The second benefit of an accurate cash flow statement is that it's reusable. It's something that you will be surprised how many times you go back to again and again to revise and model out different scenarios. With financial planning, we know from experience that when we work with clients and build out a financial plan, about 10 minutes after that plan is built out, things are changing, life is happening, and we are constantly making revisions and working with clients very closely to make those changes within a financial plan.
Invariably, we go back to the cash flow. How is your life changes being impacted, and how is it reflected in your cash flow? So, some examples might be maybe you're thinking whether you should buy or lease a car, what is the difference, the impact on your monthly expenses going to be? Maybe you're thinking about buying a second home, and you want to see the impact on your cash flow. Or maybe your child's going to a college that was a little more expensive than you originally anticipated—all of those come back to the cash flow. Let's see the impact on any surplus or deficit after taking into account all of your income and expenses, and let's build that into the plan. So, second benefit: it's reusable. It's something that, because it's kept simple and nice and easy, you're going to see that you keep using it over and over again.
3. Cash Flow and Divorce Proceedings
The third benefit to the cash flow statement is specific to my clients who may be going through a divorce. One of the documents that you have to fill out as you're going through a divorce is the Case Information Statement in New Jersey, otherwise known as the CIS. The CIS has a number of different sections, but specifically, sections B, C, and D are all about income and expenses. And the CIS is a real challenge to go through on your own. It requires you to go and look up all of your income, all of your income sources, all of your expenses and then fill those in as accurately as possible. And you really want your CIS to be accurate because alimony, child support, all of these big decisions, equitable distribution, they're all based on that CIS. So having that document accurate is critical when you're going through a divorce. Having an accurate cash flow statement is very handy. It has all of that information that the CIS is requiring, so you can easily transfer. I've helped clients do this before. It's one of the services that we provide to make sure that that Case Information Statement is 100% accurate, and you can have total confidence in it. So, definitely a benefit of having an accurate cash flow statement.
Conclusion and Resources
Just a quick recap on the three benefits of an accurate cash flow statement: The first is peace of mind, just knowing those numbers of what's coming in and going out each month and every year. The second benefit is that it's reusable. It's something that we keep very simple by design, and it is really something, a tool, that you're going to keep referring back to again and again as life goes on and as your plan changes and things come up, sometimes more expensive than you expect. You go right back to the cash flow and model out that scenario. You'll be surprised how many times you go back and use it.
The third benefit is that if you are going through a divorce, the Case Information Statement is required in New Jersey. It's called the CIS. It is a bear to go through, and sections B, C, and D are all about income and expenses, and you need that kind of detail. Guess what? The cash flow statement provides that detail to help you get started.
I actually included a link down in the description field to a PDF. It's actually of our data collection worksheet. So, if you'd like to see what that looks like, feel free to go down in the description field check out that PDF. And you'll also notice there's a link down there if you'd like to schedule a quick 15-minute chat. Be happy to do that. If you have any questions on the cash flow, feel free to reach out.
Thanks for watching. See you next time.
Joseph Goldy, CFP®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.