This month we decided to geek out on one of our favorite financial planning topics - managing cash flow. Around here, we think it is the secret sauce for turning financial plans into reality!
Nerds of note on cash management
People living on a limited income aren’t the only folks who can benefit from proactive cash flow planning. We find that everybody struggles with Plenty and Enough, regardless of the size of their paycheck, income or net worth.
At Modernist, we help creative inheritors and entrepreneurs structure their wealth around their values. Even with sizable windfalls, very few people can spend from their inheritance or business sale proceeds care-free. In the absence of planning, lifestyle creep poses a serious problem. On top of this, creatives often inherit a sense of shame or helplessness along with the money.
We find that cash flow is the key to taking our big picture financial life planning conversation about goals and values and turning it into a tool people can use daily to improve their relationship with money.
Here’s a summary of how it works: First Step Cash Management System (9 minutes). Categorizing spending in terms of the Past (recurring bills), Present (daily spending) and Future (needs and wants), helps our clients understand their spending. They begin to feel permission to enjoy today while providing a stable financial base for their future.
For our working clients who also have significant portfolios, this system helps clarify how much they can/need to distribute from their portfolio to fund their ideal lifestyle – sabbaticals, art classes, and charitable donations that their income may not cover.
The truly magical result we see is an increasing sense of having both Plenty and Enough.
The current political situation has many people on edge. Aside from ideological and moral concerns, there is also an increased feeling of financial risk. Does this mean that our political beliefs can or should inform our investment decisions? Once examined, this question reveals itself as being two-fold: can we use our personal beliefs about markets and politics to sidestep a decline AND reinvest in time to capture the rebound?
Our Investment Committee reviewed 66 years of security prices and found that “generally speaking, it isn’t a good idea to try to get out of the market when it’s falling.” More importantly, “once you get out of the market, it is difficult to time exactly when to get back in – many investors lose money by missing the market rebound.”
The fact is, to successfully time the market you would have to know the exact date of the precipitating event AND the exact timing of the investing public’s emotional reaction to it (from initial shock to eventual acceptance). To us, this seems like a tall order even for the shout-iest of pundits.
You can check out the full text of the study here.
Modernist takes it outside
On February 4th, we had the privilege of hosting a pro-bono workshop for the Center for Women’s Leadership’s alumna. Each year CWL graduates a class of women equipped with the skills to become fearless leaders in their communities. We designed the workshop around our cash flow system since student loans and rising cost-of-living were the group’s biggest concerns. Most of the participants were in the early years of their careers, eager to figure out how to meet their goals. It was so lovely to share our work with a roomful of brilliant and ambitious young women. There is hope yet!
By the way, applications are still available for their summer 2017 New Leadership Oregonprogram for college women – please share with the future boss-women in your life! Email us if you know of another Portland, Oregon or New York City non-profit that serves a community who would benefit from a pro bono financial life planning and cash flow workshop.
Songs that are really about cash flow
We all manage our emotions differently. Some have a habit of going for a run or having tea with a friend when they’re depressed or worried. Far more of us struggle to process strong emotions, instead trying to get away by shopping, drinking, or eating.
At Modernist, we work to help ourselves and our clients become aware of when we stray from using money as a tool to fulfill our needs and values.
Solange Knowles’ Cranes in the Sky, is a gorgeous meditation on all of the ways she has tried to avoid her deepest feelings, “I tried to drink it away/I tried to put one in the air/I tried to dance it away/I tried to change it with my hair//I ran my credit card bill up/Thought a new dress would make it better...Away, away, away, away, away, away” Check out her stunning video (below) or her digital artist’s book here.