Of all the continuing education and industry designations I have undertaken to keep my knowledge and skills up to date during my 20 years as a financial planner, not a single one has talked about the emotional and psychological side of managing our cash. Even my own cash management left something to be desired – my line of credit was getting near the limit, and my family’s expenses were continuing to climb. How am I supposed to advise my clients on how to manage their cash flow when I’m not even managing my own money well? Something was missing from my own plan, as well as from the advice I was providing to my clients.
When I decided to focus my practice on the family market – couples with a couple of kids, a house with a big mortgage and not enough hours in the day – I discovered that most people I met were living beyond their means and were looking for help. According to a 2016 survey from insolvency specialists MNP, 56% of those polled would have negative cash flow if their monthly debt payments increased by $200. The credit rating agency TransUnion, meanwhile, found that 718,000 Canadians couldn’t absorb a 25-basis-point increase in interest rates.
Now that the price of housing in the Toronto area is reaching the stratosphere, families are taking on huge amounts of debt and not leaving themselves enough room for challenges. Many families can’t survive missing one paycheque. Clearly our advice is in great need.
Even those with high net worth need cash-flow planning. I have found that my retired clients are afraid of outliving their money and are not enjoying the results of their hard work and planning. A detailed cash-flow plan can show our clients how to maintain their lifestyle into retirement and give them the comfort they need to spend appropriately.
At industry events, I’ve spoke with lots of advisors and found that regardless of their target market (high net worth, mass affluent, young families), they were finding the same challenges and were searching for strategies and solutions to help their clients get more cash coming in than was going out.
So how do we manage our cash flow? I have found most of my clients are like me and would rather avoid the entire budgeting process. We have little time to sit down with our partners to discuss spending, and our individual personalities and developed attitudes toward money can create conflict. So what do we do?
In 2015, Manulife Bank hosted a seminar by Stephanie Holmes-Winton of The Money Finder. Holmes-Winton had encountered the same challenges I had, and she has developed and refined strategies and tools that work. I completed The Money Finder’s Certified Cash Flow Specialist program and learned methods and concepts that are designed to be compatible with human psychology, rather than relying solely on math. As a Certified Cash Flow Specialist, I use a combination of math and behavioural strategies to provide advice my clients can actually follow and can reasonably keep up with for life.
One of the first things I do is simplify a client’s debt structure. Diversification is a great investment strategy, but an expensive one for managing debt. It’s hard to figure out how you’re doing if you have a car loan, line of credit, mortgage and credit card – but put it all in one credit facility, and success can be measured by the balance owed.
The second step is to start using cash for discretionary spending. This works very well with joint bank accounts. It’s difficult to keep track of who spent what when you are using debt. With cash, you decide what to spend it on, and if it’s all gone, you’ll just have to wait until next week to have that Frappuccino.
If we are providing advice to Canadian families, then we have to stop pretending that all our clients have their spending under control. Our mission must be to defuse the debt bomb and help families fund their dreams.
David Maynard is a financial planner and investment fund advisor with Investia Financial Services in Brampton, Ontario, who focuses on cash management and helping people get more life from the money they have.