Cash Flow Connections

Cash Flow Connections

At Sophia, we don’t like the “budget” word. Many people have a negative, knee-jerk reaction to budgeting. It’s like a diet; a short-term fix to shed those five extra pounds, or a belt-tightening exercise to pay off that credit card debt. Budgeting feels restrictive, time-consuming, even punitive. A budget is something we usually associate with a problem that needs to be fixed.

Cash Flow Tracking Starts from a Position of Curiosity and Compassion.

Cash flow is really about keeping track, and it’s a mirror for what’s happening in the rest of your life. It’s your money, and you get to make choices about how you’re going to use it. There is no right or wrong way to make those decisions. With choice comes power, and recognizing that you have the ability to choose is empowering.

When the flow is constricted, and the money going out exceeds the money coming in, we get stressed and anxious. We can feel paralyzed, and unable to make choices. If we can overcome our fear, and get to the underlying reasons behind the decisions that led us to this place of constriction, then we can find our power. This is where freedom starts.

Overcoming Fear

So, how do we overcome our fear and look at our cash flow with compassion and a creative mindset? The first step is to create a toolbox for diminishing anxiety and stress. Find ways to get out of negative patterns. Start by adding one thing to your routine that makes you happy or makes you feel good. Take a walk around the block every morning before breakfast. Put on your favorite music while you make dinner and dance around the kitchen. Have a candle-lit bubble bath. Set aside ten minutes to do a morning stretch with the sunrise. Do something nice for yourself.

We know, you’re wondering what candles and stretching and dancing have to do with cash flow. What we want is for you to get out of the anxiety mindset and into a creative space where you can think clearly.

“We’ve seen it over and over — once people find calm, they find choice, and with that choice comes power.”

Managing cash flow is fundamental to getting your whole financial world in order. It’s an opportunity, not a punishment. The cash-flow mindset versus the budget mindset is an issue of perspective. If you see your money as a flow rather than a problem to solve, you’ve improved your relationship with your financial situation by changing your perception. Find your flow, own your power to choose, and financial freedom will follow.

Listen to Wise Money Moves Podcast to hear Tracy and Kamal talk about cash flow connections.

Financial Planning – Start Where You Are

Financial Planning – Start Where You Are

Wealth exists on a continuum. Once we see ourselves on that continuum, we’re tempted to compare ourselves to others. Some of us started further along by virtue of birth and circumstances. It’s valuable to remember that we each started somewhere different, and we’re all going to get somewhere different.

Strength and Power Come from Acknowledging Reality and Moving Practically.

These five steps of financial planning can be applied at any stage of life; from your first job, through big life changes like marriage, divorce, or selling a business, all the way to retirement. The steps provide a robust architecture to help us stay on track, and cut out the distraction of worrying about where we are on the continuum compared to others.

1. Calculate Net Worth

Net worth is calculated by making a list of two columns. In the first column, list all the things that you own — like savings accounts, investments, RSPs, TFSAs, real estate — and the value of each.  The items on this list must have liquidity, meaning they must be convertible to cash. In the second column, list everything that you owe — student loan, car loan, mortgage balance, credit card balance — and the debt value of each. Draw a line at the bottom of the columns, and add up what you own versus and subtract what you owe.  This exercise provides your net worth and your starting point. Download the Sophia Net Worth Calculator to help you begin your financial planning today.

2. Map Out Cash Flow

Next, calculate how much money is coming in versus how much money is going out. At the end of each month, you want to know if you’re spending more than you’re bringing in, or if you have a surplus. To map out your cash flow, add up all of the sources of income from things like your job, rental income, and investments. Then look at your bank and credit card statements to see what you’re spending. Compare these two numbers. Are you spending more than you’re saving or do you have a surplus? Do you have any cash reserves for unexpected expenses or opportunities? Download the Sophia Cash Flow tracker today for a helpful and informative guideline.

3. Set Goals

Where do you want to go? While vision-boarding is fun and useful for dreaming, it’s not the right mindset here. Real-world, focused goals provide a foundation for the framework strategy you’ll build in step four. Set three or four concrete goals. Simplicity and clarity are key. Staying focused on a few essential goals allows you to put strategies in place and keep your progress on track. Of course, life happens, and goals can change. You can add to them or subtract from them as needed. The other essential piece is attaching a cost and timeframe to each of your goals. How much capital is required to achieve each goal, and when do you want or need to see that goal fulfilled?

4. Frame a Strategy

Strategies have to do with matching the investment solution with the timeframe of your goals. Money that you’re going to need or want within the next few years should be in a guaranteed-savings product like a high-interest savings account, a money market fund, or a short-term GIC. If the goal is, say, ten years out, then you’ve got time to cultivate more growth by investing in the stock markets, or in bonds. Let’s say you have $10,000 and want to invest it in stocks, but you may need the money in two or three years. The volatility inherent in the markets could decrease your investment, and you might not have time to recover before you need your capital back.

History and research show us that if you’re willing to keep the money invested longer than six years, your chances of having less than what you put in are virtually zero.

5. Review and Monitor

At least once a year, take stock of where you’re at and what progress you’ve made. Talk to your advice provider and tell them your goals all over again. Go through steps one to four and make sure your strategies still match your goals. Compare where you were a year ago with where you are now. Recalculate your net worth and cash flow, then check in with your goals. Refocus and recommit. Celebrate your successes, and over time, your net worth will start to increase.  Knowing your net worth is key to measuring your progress.

The process of defining where we are on the wealth continuum can be emotional and daunting as well as satisfying and fulfilling.

Find an advisor you trust, or put together a mentorship group, or work with a coach that “gets you.” That person, or group, can help you see the things that are holding you back, and get you moving on your personal journey to, well, go wherever you want to go!

Listen to Wise Money Moves Podcast to hear Tracy and Kamal talk in further depth about the five steps of financial planning.

The Power of “Enoughness”

Enough is a powerful concept. Acknowledging that we have enough can keep us whole. By contrast, constantly striving for more can make us feel less than complete 

Tracy Theemes explains her journey discovering the power of enough:  

A few years back when we were working to open this business in the midst of a financial crisis, and I was struggling with some things in my personal life, I had an insight; what had happened to me in my past had brought me to where I was. Exactly what needed to happen had happened. I started this mantra; I am enough, I have enough, it is enough.  

I saw this idea — of being and feeling adequate — in many of our high net worth clients. They weren’t always striving for some invisible abundance idea that’s off in the distance. They were enmeshed in their own sufficiency. I started talking about the idea of enough in the financial classes I was teaching, and it annoyed a lot of people. I got push back that, ironically, enough isn’t a good enough goal.  

“If we‘re always looking for abundance and prosperity, by definition, we want more. As soon as we want more than what we have, we‘ve created a gap. And what’s in the gap? Insufficiency.” 

Taking stock and appreciating what we already have is the first part of enough. The second part is recognizing that enough will produce more “enoughness.” We have to acknowledge the adequacy of where we are now. We can’t skip adequacy and jump straight to abundance.  

I also think there’s work that can be done on the outside. Clients say, “Okay, I am enough, have enough, but how the hell am I going to get ahead?” I try to help them figure out how they can be peaceful with their finances and still map out a plan. This is where financial planning comes in.  

Kamal Basra knows that enough has a number, and she knows how to crunch it.

If we’re to feel secure in our idea of enough, we need to know what planning for “more enoughness” actually means. Kamal talks us through the steps to finding our personal place of enough: 

We start off with where you are now; what do you own, what do you owe, what savings do you have? And what is it that you want to achieve? The answers to these questions create specific goals. Then, we do the analysis to bring the idea of enough into the realm of the practical.

“There might be a wide gap between where you want to be in the future and where you are right now. The analysis becomes a tracking system, like the GPS in your car.”

It allows people to realize where they are on the continuum, and how much progress they’ve made on the road to reaching their goalsThe numbers make it doable. We move the idea of enough from the philosophical to the practical.  

We know that it’s easy to get lost on the way to acknowledging adequacy and finding our enough number. Tracy’s journey required reciting her enough mantra 1350 times in one day to just stave off panic attack! But when she persevered, and owned the belief that she was enough, she had enough, and it was all enough, she stepped right over the abundance gap, and into powerful sufficiency. And so can you. 

Listen to Wise Money Moves Podcast to hear Tracy and Kamal talk about “how much is enough”.