So, how do you go from having career earnings in the billions, being the largest taxpayer in 1973, having a giant estate that constantly produces revenue, and leave only a few millions behind, 70% of which end up in the hands of Uncle Sam for estate taxes? Well, it happened and it happened to the one and only Elvis Presley. When Presley died of a heart attack, his finances were everything but figured out and—thanks to his infamously dishonest and slimy manager Tom Parker—bad deals and constant lack of planning would consistently rob the Presley estate of huge potential.
Most people might not be dealing with billions of dollars and three Grammys but it just goes to show just what lack of financial planning can really do and how it can affect people and families even after a person is gone. This month, we thought we’d scratch the surface and take a look at some common tips that can get people started thinking differently about their finances, particularly as the economy remains in the post-corona slump.
Always Keep an Eye on Your Finances
Both as an individual and a business, you want to stay on top of your finances. Planning out a budget is important and key to having stability in your finances. What is referred to as cash flow planning can be different in different contexts? If you are an individual, cash flow refers to you balancing your budget, staying within budget, and even saving. When it comes to businesses, it’s about balancing the costs and earnings that your business is bringing in. On the surface, it might seem pretty straightforward, but there are a few key insights that might help you approach it in the best way.
Cash flow refers simply to ‘cash flowing in.’ It is not limited to cash only; it also refers to any form of profits, assets, that come and go from anyone or any business. Cash flow is a great way for companies to see the difference between what they owe and what they are earning. For individuals trying to reign in their expenses, it’s a great way to help minimize debt and even build the rainy day fund. Before the pandemic, more than half of Americans were already feeling anxious about their finances. That number has likely grown, as many more have lost jobs and businesses. Instead of panicking, the best thing to do is to engage in proactive financial planning and—if you already had a financial plan—to assess it and make changes where needed.
Personal Cash Flow Planning
Thinking about cash flow in simple terms can be one of the easiest ways to start a solid financial plan. Your family can sit down and figure out a cash flow plan that ensures you can properly support your spending on a regular basis. It is very easy to let a month of bad finances have ripple effects that last for a month after that. Without a cash flow plan, people often fall into debt, end up putting way too much on the credit card, or miss important payments.
Even after the pandemic settles a little bit, the unemployment rate is still about 10%. That’s still a lot of people without jobs. In early 2020, only 40% of Americans could meet the $1,000 rainy fund and about 80% of workers are living paycheck to paycheck.
It is time to plan and update cash flow projections. The positive cash flow is what you have leftover. So, if you and your spouse make a total of $5,000 a month and spend on mortgage, car payments, insurance, and other daily expenses a total of $3,000, that leaves you with a $2,000 cash flow. Being smart with that cash flow is what determines whether you reach your financial goals or end up going into debt or failing to have the rainy fund necessary.
Business Cash Flow
The same goes for a business, having a cash flow plan in place means they are constantly aware of how much money they have coming in. Sustaining the business model and implementing costs, is heavily dependent on a good cash flow plan. A company should pay close attention to:
- Accounts receivable: Basically refers to all the assets coming into the business.
- Accounts payable: What a company has to pay out including payroll, loans, and more.
Seek a Financial Advisor Familiar With Your Goals
Talking with a financial advisor can help you or your business figure out a plan that will make sure you recalibrate and are ready for the next unexpected shake to the economy. Here at Biel Fisette Iacono, we can help you figure out your finances. History teaches us that the economy reacts to different social, cultural, and external forces. So whether it is a war, a housing bubble, overspending, or a virus that runs rampant through the population, the market recovers, but it is not untouchable. These hiccups will always happen and being prepared is the best way to ensure you are ready to take care of your family, your business, and your employees.