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Revisiting Your Cash Flow

In the past, we’ve said that doing periodic checkups of your cash flow is an essential part of financial planning (link to 3/1/2007 article). By keeping tabs on your cash flow, you’re better able to understand the relationship between your income and expenses. Also, a cash flow analysis is a crucial part of insurance, retirement and estate planning and other areas of long-term planning.

During an economic and financial downturn, the importance of doing a detailed and accurate analysis of your cash flow becomes even clearer, regardless of what your personal or financial circumstances are:
  • If your household gets hit by a job loss or reduction in pay or hours, a cash flow analysis will enable you to create a budget – which, in turn, will help you keep your finances in order, stay current on bills and maintain good credit scores until you get back on your feet again.
  • Even if your household seems unlikely to face a job loss or reduction in pay or hours anytime soon, a cash flow analysis and budget can help you prepare for a worst case scenario.
  • If you’re retired and using savings to cover living expenses, consider analyzing your cash flow to determine whether you can temporarily reduce your expenses and savings withdrawals. By reducing expenses and withdrawals, you will be better able to avoid having to sell investments when values are down.

A cash flow analysis may, in fact, reveal that your finances in order. But even that will pay off for you, because you’ll gain financial peace of mind – a valuable commodity indeed.

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