Managing Director, Tax & Estate Planning
CIBC Financial Planning and Advice
“Cash flow planning is an absolutely critical part of the financial planning process. Without cash flow planning your whole financial plan is useless because you don't know how much money you have, how much you're taking in and how much you're spending.”
Is paying off debt a priority?
“According to a CIBC poll 25% of Canadians found that paying down debt is their number one financial priority. That being said, why aren't they doing it? And the issue is you need to make debt repayment like a regular budgeted expense. So every month, if you're budgeting for groceries and you're budgeting for rent or property taxes, you also need to put a line item in your budget for debt repayment.”
Top 3 Tips for Cash Flow Planning
“So how do you achieve all this? Well three quick tips:”
Tip #1 - Write down you income and expenses
“First of all write down all of your income expenses. The best thing to do is gather three months’ worth of information. When you analyze where the money is coming in, where the money is going out, are you net positive or net negative at the end of those three months? Now if you're net positive that's a good sign. The question then is, what are you doing with that extra cash flow? Are you using it to pay down high interest debt like credit card debt at 20%? Or are you using it to perhaps save in an RRSP or a TFSA for retirement? Maybe setting some money aside for your kids post-secondary education.
If you review your cash flow and it's actually negative, then you need to take a step back. And look at all the expenses that are coming out of those accounts in that three month period and see if perhaps there are ways to reduce some of that spending. Maybe you're spending too much on certain categories that may not be necessary or that can be deferred until later because after all at the end of the day if you're spending more money than you're actually taking in, that becomes a big problem. It becomes much more difficult to achieve financial goals without getting further into debt.”
Tip #2 - Pay yourself first
“Number two: pay yourself first. If the money comes automatically right off your payroll before you even see it gets deposited into an RRSP or a TFSA then you don't see it you don't spend it.”
Tip #3 - Review and prioritize financial goals
“And then finally, review and prioritize your goals. You may have different goals some of them may be conflicting one with the other; paying down debt versus saving for kids education. Meet with an advisor and they will be able to help you be able to choose which goals you're going to meet first and which ones may take longer periods of time.”