When beginning your search for a financial planner, you’ll find wealth-management firms often implement different strategies when structuring your financial plan. Most advisors will utilize cash flow financial planning, goals-based financial planning, or a hybrid between the two.
Cash flow financial planning encompasses a holistic approach to your finances, it analyzes everything before deciding what is possible. Goals-based takes a different approach, it puts your goals first when building out your plan, then dives into the nuances behind those goals rather than every aspect of your finances. Some firms believe that both strategies should work together to provide the best outcome. To understand how they can work together, you’ll need to understand the benefits of each strategy.
What is Goals-Based Planning?
The goals-based approach addresses one question before anything else. What are your goals? What needs and wants do you have in the short and long-term? This could be early retirement, a second house, charity donations, or simply leaving money for your heirs. Regardless of what your goals are, they are the building blocks of your financial plan, guiding your strategy to help you accomplish them.
In some instances, implementing a goals-based approach can be too broad and miss the important spending and saving details found in cash-flow planning. While reaching your goals should be the main objective of your financial plan, relying solely on goals-based planning can often be incomplete.
What is Cash Flow Planning?
The cash flow approach dives into every aspect of your finances. While goals-based is anchored on your long-term goals, cash flow planning is anchored on the intricate details of your finances. It starts by analyzing your income, expenses, estate planning, investments, and much more. It allows your advisor to develop a thorough understanding of your finances, before structuring a plan to reach your long-term goals.
Exchange prides itself on being a goals-based financial planning firm focused on reaching your long-term goals. However, we always start with the comprehensive lens of cash flow planning. We utilize both techniques to help you plan for your future. The goals-based approach identifies where you want to go, and cash flow planning builds the framework to help you get there.
We firmly believe that one strategy is not better than the other. To us, both strategies must work together to meet your needs.
The Bottom Line
We align ourselves with goals-based planning because it puts your wants and needs first, but we utilize cash flow analysis to realistically reach those goals. Some argue firms must take a side, we disagree.
To learn more about how a comprehensive planning approach can benefit you, consider scheduling a discovery meeting with us or giving us a call.