Financial Advisors: Should your projections focus on cash-flow or goals-based planning?

Jul 21, 2023

Cash-flow planning and goals-based planning are two distinct approaches to financial planning, each focusing on different aspects of an individual’s financial situation and objectives. Ultimately, the “better” approach depends on the client’s circumstances, needs, and preferences. But should you really have to choose?

A skilled Financial Advisor can assess the client’s situation and goals, and design a customized financial plan that incorporates elements of both cash-flow planning and goals-based planning to address their specific needs and aspirations effectively, but they need the right financial planning software to execute.

We do not believe Advisors should have to pick. Before we get into that, let us take a closer look at both variants and explore the reasons and benefits of each.

Cash-flow planning

Cash-flow planning primarily revolves around managing and optimizing an individual or couple’s income and expenses on a daily, monthly, or annual basis. It can involve creating a comprehensive budget, tracking expenses, and analyzing cash inflows and outflows over a specific period or an entire lifespan.

The goal of cash-flow planning is to ensure that there is sufficient cash available to cover regular expenses, manage debt, and maintain financial stability. It provides a snapshot of one’s current financial situation and helps to make informed decisions regarding saving, spending, and managing cash-flow effectively.

A Financial Advisor may choose to focus on cash-flow planning for their clients for several reasons:

Establishing a solid financial foundation: Cash-flow planning is the foundation of financial planning. By helping clients manage their income and expenses effectively, Financial Advisors can ensure that their clients have a solid financial base. This can include developing a budget, tracking spending, managing debt, and building emergency funds. By addressing these fundamental aspects, Advisors can help clients establish healthy financial habits and increase their financial stability.

Addressing immediate financial concerns: Cash-flow planning is particularly relevant for clients who are facing immediate financial challenges or are living paycheck to paycheck. For example, by analyzing their cash inflows and outflows, Advisors can identify areas where expenses can be reduced or optimized, which could potentially free-up cash for savings, debt repayment, or other pressing financial needs. This approach helps clients gain control over their finances in the short term.

Building financial discipline: Cash-flow planning requires individuals to be disciplined in tracking their expenses and adhering to a budget. By guiding clients through this process, Financial Advisors can help to create financial discipline and help clients make informed, educated decisions about their spending habits. Developing discipline in managing cash-flow can have a significant positive impact on overall financial well-being.

Planning for future goals: Cash-flow planning also plays a crucial role in preparing clients for future financial goals. By analyzing their current cash-flow, Advisors can assess their clients’ capacity to save and invest for future objectives. By optimizing spending and identifying areas where savings can be increased, Advisors can help clients free up funds for investments, retirement planning, education funding, or other long-term goals.

Tailoring financial advice to individual circumstances: Cash-flow planning allows Financial Advisors to understand their clients’ unique financial circumstances, including their income sources, expenses, and financial obligations. This knowledge enables Advisors to provide personalized recommendations and strategies based on the client’s specific situation. By customizing their advice, advisors can offer practical solutions that align with the client’s cash flow and financial goals.


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Goals-based planning:

Goals-based planning is centred around identifying and prioritizing specific financial goals an individual or couple wants to achieve in the future. It involves setting clear objectives, such as buying a house, funding education, retiring comfortably, starting a business, or any other personal financial goals.

Goals-based planning takes into account various factors like time horizon, risk tolerance, and investment options to develop a strategic plan tailored to achieve those specific goals. It focuses on long-term financial planning, incorporating investment strategies, asset allocation, and risk management techniques to accumulate wealth and meet future objectives.

A Financial Advisor may choose to focus on goals-based planning for their clients for several reasons:

Clarifying and prioritizing financial objectives: Goals-based planning helps clients identify and prioritize their financial goals. By engaging in goal-setting discussions, Financial Advisors can gain a comprehensive understanding of what clients hope to achieve in the long term. This process allows Advisors to align their recommendations and strategies with the client’s specific aspirations, whether it’s retirement planning, purchasing a home, funding education, starting a business, or leaving a financial legacy.

Providing a roadmap for achieving goals: Goals-based planning involves creating a strategic roadmap that outlines the steps necessary to achieve each objective. Financial Advisors help clients break down their goals into actionable milestones, estimate the financial resources required, and develop a timeline for achieving them. This process provides clients with a clear plan and actionable steps, increasing their confidence and motivation in working towards their goals.

Incorporating investment strategies: Goals-based planning integrates investment strategies into the financial plan. Financial Advisors consider the time horizon and risk tolerance associated with each goal and develop an investment portfolio that aligns with the client’s objectives. This may involve asset allocation, diversification, and ongoing portfolio management to maximize the probability of achieving the desired outcomes. By focusing on goals, Advisors can tailor investment strategies to meet specific financial milestones.

Managing risk and adjusting strategies: Goals-based planning allows Financial Advisors to consider potential risks and uncertainties that may impact goal achievement. Advisors assess various scenarios, such as market volatility, unexpected expenses, or changes in personal circumstances, and develop strategies to mitigate risks. They also regularly review and adjust the financial plan as needed to keep it aligned with changing goals, market conditions, and the client’s evolving circumstances.

Monitoring progress and celebrating achievements: With goals-based planning, Financial Advisors continuously monitor progress towards each goal. By tracking performance, providing regular updates, and conducting periodic reviews, Advisors keep clients informed about their progress and make adjustments when necessary. Celebrating milestones and achievements along the way reinforces the client’s commitment to their financial plan and helps them stay motivated towards their long-term objectives.

Long-term perspective: Goals-based planning encourages clients to think beyond their immediate financial circumstances and consider their future needs and aspirations. It helps foster a long-term perspective and encourages disciplined saving and investing to accumulate wealth over time.

Building the case for leveraging both cash-flow and goals-based planning in your practice.

It’s important to note that goals-based planning and cash-flow planning are not mutually exclusive. In fact, they can complement each other within a comprehensive financial plan. A holistic approach might involve starting with cash-flow planning to establish a solid financial foundation and then integrating goals-based planning to align savings, investments, and strategies with long-term objectives.

Here at Snap, we believe that utilizing both cash-flow and goals-based planning approaches in the financial planning process provides Financial Advisors with a comprehensive toolkit that addresses both the short-term and long-term financial needs of their clients.

By combining these two methods, Advisors can create a more holistic and effective financial planning experience.



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Here is why at Snap Projections, we believe in both.

1. Comprehensive understanding of the client’s financial situation: Cash-flow planning focuses on managing income, expenses, and savings on a daily, monthly, or annual basis. It helps clients track their cash inflows and outflows, budget effectively, and manage debt. On the other hand, goals-based planning provides a forward-looking perspective, enabling clients to articulate their long-term financial aspirations. By employing both approaches, Financial Advisors can gain a thorough understanding of both the immediate financial circumstances and the overarching goals of their clients.

2. Alignment of short-term decisions with long-term goals: Cash-flow planning helps clients manage their day-to-day financial affairs, ensuring that they have sufficient resources to cover expenses, manage debt, and save for emergencies. By incorporating goals-based planning, Financial Advisors can then help clients connect their current financial decisions with their long-term objectives. This alignment ensures that short-term financial actions, such as budgeting, saving, and investment decisions, contribute to the achievement of larger goals, such as retirement planning, education funding, or buying a home.

3. Flexibility and adaptability: Cash-flow planning provides clients with a framework to adjust their budget, manage debt, and make short-term financial decisions based on their current situation. It allows clients to adapt to changes in income, expenses, or unexpected circumstances. Goals-based planning, on the other hand, provides a framework to create and monitor progress towards long-term goals. By employing both approaches, Financial Advisors can help clients navigate short-term financial challenges while staying committed to their long-term goals, and adjust their plans accordingly as circumstances change.

4. Accountability and progress tracking: Cash-flow planning enables clients to track their financial activities and monitor their progress in managing expenses, saving, and reducing debt. This real-time tracking can help clients build good financial habits and stay accountable to their short-term financial goals. Goals-based planning, with its focus on long-term goals, allows clients to set measurable milestones and track their progress toward achieving them. By integrating both approaches, Financial Advisors can provide clients with a comprehensive view of their financial journey, celebrating short-term victories while keeping their eyes on the ultimate destination.

5. Enhanced client satisfaction and outcomes: By employing both cash-flow and goals-based planning, Financial Advisors offer a more comprehensive and holistic planning experience. Addressing both short-term financial management and long-term aspirations, Advisors can help clients achieve a well-balanced financial life. This approach often leads to enhanced client satisfaction, as they see the tangible benefits of managing their finances while working towards their long-term goals.

Essentially, employing both cash-flow and goals-based planning methods in financial planning allows Financial Advisors to provide a more comprehensive and effective service. By combining the detailed management of cash-flow with the forward-thinking approach of goals-based planning, Advisors can help clients align short-term actions with long-term objectives and build a strong financial foundation for their future. This integrated approach enhances understanding, flexibility, accountability, and ultimately leads to more satisfied clients and positive financial outcomes.

In a perfect world, you’d be able to prioritize both. Does your suite of financial planning tools allow for that?

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