Years ago, I had an Australian Shepherd mix breed named Reese. He was quite a handful and difficult to calm as a young dog, and obedience training was no help. But then we discovered agility training, which gave his mind something to do. It was like we had a whole new dog. It turned out he was brilliant at navigating challenging terrain and processing rapid changes in direction. As I sat down to write this week, I had been reminiscing about Reese and it got me thinking about agility in general. So I thought I’d write about the concept of financial agility in this blog. 

A·gil·i·ty /əˈjilədē/
Agility: The ability to start, stop, and move quickly in different directions.

How nimble are your clients’ finances? No matter what we plan for, life will always have a plan of its own. Our clients need to be ready to gracefully navigate challenging financial terrain, just like my buddy Reese. 

What is financial agility? It’s your clients’ ability to handle life’s bumps in the road without ending up in the ditch. This is why working with clients on debt and cash flow is so incredibly important. Dealing with the volatility of assets and the complexity of insurance is one thing, but your clients' debt and cash flow can have a compounding effect on any difficulties brought by those other areas of their finances. It’s all connected.

Test your clients’ financial agility using the following questions.

  1. Can you handle losing one income? For how long?
  2. What happens to our cash flow if interest rates increase by 3%? (This number isn’t unreasonable and, in fact, I bet lots of people probably wished they’d been asking themselves this a few years ago.)
  3. How much money does your family need just to survive 30 days?
  4. What is your back-up plan if life changes and you need the flexibility to change the plan too?

If you or your clients don’t have the answers to those questions built into the plan they have with you, they could bob when they should weave and end up face down in the dirt.

If I were to take my former clients through the scenarios in the questions above, here are some examples of how we’d have built the answers into their plan.

1. How long can the client handle losing one income?  

They can handle losing either income for _____ months. They’ve followed their spendable recommendation, and are paying down debt at a far more rapid rate than before. In addition, they are saving and investing regularly. If they had to do without an income, they have a financial cushion that would give them several months to figure it out before their plan was off track. Should one of them lose their income, their cash flow plan could be immediately adjusted accordingly to maximize the time they have to figure it out. Flexibility has been built into their spendable, debt repayment strategy and emergency savings. Disturbing long-term assets or insurance plans is a last resort, and it would take months to get to the point where they’d have to consider that.

2. What happens to the cash flow plan if interest rates increase by 3%? 

This is why we adjusted the debt structure to pay down the principal faster. This is the only way to reduce the impact of fluctuating interest rates. Clients following their cash flow plan are often ahead of their original debt repayment trajectory. For example, if the client is on track to pay their mortgage off in 10 years, interest rate increases will have limited impact on their cash flow or financial plan. Right now, an increase in interest rates by an additional 3% for a client with more than 10 years on their mortgage will likely require a slight adjustment to their automated payments for long-term savings, debt repayment, emergency savings and saving for short-term goals. Remember, the rate is what your clients see, but it’s actually how much their debt costs that really matters. The most reliable way to reduce the cost of debt and risk of fluctuating rates is to pay down the balance as quickly as possible. With a cash flow plan, you don’t have to put off investing for the future to free up enough money to pay off debt more rapidly.

3. How much money does the client’s family need just to survive 30 days? 

A cash flow plan shows totals for two crucial expense categories: committed and spendable. Adding those two together will calculate the exact cash flow needed by any client for 30 days. Multiplying that amount by any number of months will give you an accurate need for longer periods of time.

4. What is your back-up plan if life changes and you need the flexibility to change the plan too?

This is why cash flow and debt need to be a big part of the planning and advice process, in addition to things like investments and insurance. All of these things work together. Should they need flexibility, that cash flow plan will have created several avenues from which to choose. Following a well-designed cash flow plan should mean they have emergency funds to draw from. They could also reduce or redirect short-term savings. It’s easy to identify which expenses could be adjusted. They should have low-cost (relative to the market) debt accessible if they need to use it temporarily. Debt can be a good option for short-term financial shifts when most other avenues have been exhausted before you recommend your client withdraw funds from any investments, especially if that withdrawal will trigger tax consequences, making it an even more costly option.

Clients yearn for the comfort these answers bring them. When we talk about peace of mind in the industry, this should be a big part of it. And even your well-established clients with little to no debt need the ability to deal with changes in their circumstances. So why the hesitation by so many advisors to add cash flow planning to their process? We know it comes with a perceived level of effort, but we’ve found that most overestimate the amount of work, and underestimate revenue impact. It’s the hesitating that’s time consuming and expensive. So stop hesitating. Without dealing with cash flow, what do you offer clients to keep the plan on track even when their lives shift?

Without cash flow and debt being part of the planning process, there can be very little financial agility. What are you going to do about the veritable financial time bombs that could be waiting for your clients because a written cash flow strategy wasn’t part of the program?

It can feel overwhelming to add something new, especially if you’ve survived this long without adding this service. But that thinking creates a lack of agility within your business, which can threaten your financial future. Maybe it’s time to give your clients the gift of financial agility. Using the new Cash Flow Implementation Program, you only need 30 minutes per weekday to create new revenue with cash flow planning. Before you know it, you’ll be finding the money so your clients can fund their dreams and increase their financial agility, while growing your business. 

About CacheFlo

CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allow them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.

About the Certified Cash Flow Specialist (CCS) program

CCS professionals go through enhanced cash flow-based training to develop the skill set to deliver behaviour-based cash flow advice. They start the financial planning process with a cash flow plan to genuinely help their clients get more life from their money.

About the Cash Flow Planning Implementation Program

The Cash Flow Planning Implementation Program is a 90-day program designed to help financial professionals overcome obstacles and seamlessly integrate cash flow planning into their practice. In the program, you’ll get access to the essential skills, support and tools needed to start seeing revenue from cash flow planning and how it benefits your clients. Learn more about the Cash Flow Planning Implementation Program.