Given the climate of the world right now, individuals as well as business owners are concerned about their finances and what this time of uncertainty may bring. But it can also be viewed as an opportunity to adjust your prospective about finances. If developed correctly, your financial plan can act as a lifeline for your finances — even during the most precarious circumstances. Here are seven components to any successful financial plan, be it for your personal or business finances, that you can curate today to increase your cash flow and hopefully help ease the quarantine blues.

1. Budgeting - Before I get into why budgeting is the first key component, let’s, first, address the stigma around budgeting. Budgeting does not indicate that one is “broke,” struggling, or under some type of financial constraint. Once you address your mindset towards budgeting, you’ve won a third of the battle. Budgeting allows one to make informed decisions regard your resources and how those resources should be allocated in order to achieve whatever financial goal you have set. With no budget, your financial plan is sure to fail.
2. Taxes - Now, I know this may be a taxing topic to discuss, no pun intended, but it doesn’t have to be if you have a successful financial plan. In curating a financial plan, one must not account and project for cash flow increases, but decreases as well. Taxes is one of those necessary cash flow decreases that you must strategically study and accommodated for. Failure to do so is sure to sink your entire financial plan.
3. Liquidity - Now we’re getting to the good stuff! If you’re not well-versed in accounting, here’s a component that will immediately let you know that you need a trusted accounting professional in order to develop a successful financial plan. Managing liquidity deals with your access to cash. Not all assets are liquid. In accounting, we call these assets non-current assets, which, by definition, are those assets that can be converted to readily accessible cash in more than one year. On the contrast, current assets are those that can be converted to readily accessible cash in less than one year. Your financial plan should address managing liquidity because in the event of an unforeseen circumstance, such as COVID-19, you need to be able to determine what liquid assets you have that you can leverage to sustain you or your business in the event of emergencies, pandemics, and any other unforeseen circumstances.
4. Financing - Let’s be honest. We don’t always have the liquidity we need to make large purchases outright. This is why financing is important. If you have desires to make large purchases such as your first home or a commercial office building for your business, you must address your credit worthiness. While most Americans focus on their credit score, it is more important to focus on the information that is listed on your credit report, as it tells the story of how trustworthy you are of paying back your credits. Your credit score simply denotes how well you handle debt. Now some accounting and finance influencers, such as Dave Ramsey, support and promote a “debt free” life, but if used responsibly, financing can be used to acquire more revenue-generating assets that increase your net worth and contribute to wealth building. However, if you’re using financing to acquire assets that lose value over time, or depreciate, or to make purchase that generate no revenue, then you should revisit key component number one and address your mindset as it relates to finances.
5. Risk - I’m sure you learned in grade school in science class that for every action, there is an equal and opposite reaction - one of Newton’s laws right? Well, this isn’t just true in science - it’s true in accounting and finance as well. So, for every opportunity you have to increase your cash flow, there is also a risk that your cash flow can decrease. So what do you do? The key is to manage the risk. This is done through insurance, which is used to mitigate risk. For instance, you purchase health insurance to mitigate the risk of undergoing health issues and being solely responsible for the medical bills that result. Same thing for life insurance - you purchase life insurance to mitigate the risk of loss of life. If your financial plan does not consist of acquiring insurance, you risk of building wealth with no protection from risks.
6. Investing - Before I discuss this component, let me make a disclaimer that I am not a certified financial advisor, and the information I’m sharing as it relates to investing is strictly my opinion, and not investment advice; in other words, seek a financial advisor for investment advice. Now, that we’ve got the formalities out of the way, let’s talk about investing! This is probably the most overlooked component of financial plans. Why? Refer back to component eight. The fact that involves risks such as investing in an unpredictable stock market, many individuals and businesses never explore this component and the ways it can help build wealth because of the inability to control the activity of the stock market, which directly impacts one’s investment portfolio. However, just as we mentioned purchasing insurance coverage in component eight as a way to mitigate risks, you must mitigate risks when investing as well. This is done by diversifying your portfolio, which means to choose a well-balanced mix of investments whose performance will achieve the goals of your financial plan. Too complicated to comprehend? Yeah….you should seek a financial advisor.
7. Estate Planning - This component is another overlooked component. There’s a misconception that estate planning is only for the rich and wealthy. As you’re reading this post, let the record show that I am debunking this myth today! At the first moment you acquire an asset, you need an estate plan. But there’s so many different types of assets, right? So what assets call for an estate planning? The only answer - ALL OF THEM. Whether big or small, if you have an asset, you need an estate plan. Whether that asset is a bank or retirement account or significant shares in several businesses, you need a plan for how your wealth will be transferred at the time of your death. There aren’t many things that are certain in this world, but one thing is for certain - death. Therefore, as sad and uncomfortable the topic is, it must be discussed, but from a planning aspect. After all, you don’t want to die, and leave your family to fight over your things, or, even worse, the State takes over your assets, pays off any debt you left behind, and distribute any assets remaining, if any, to your family, in the order of precedence. In addition, if there’s someone in your family that you don’t wish to leave anything from your estate, failure to address estate planning in your financial plan could cause your wish not to be honored.
8. Retirement - No one really wants to work all of their life. To ensure this doesn’t happen, it is imperative that your financial plan includes strategy that addresses when you can retire, how you will sustain yourself upon retirement, and how to save for retirement. This is a component requires the expertise of a financial advisor.
9. Communication and good record keeping - Last, but not least, you must communicate with your accounting or finance professional about any events that have the potential to affect your finances, such as birth, death, casualty, marriage, and divorce to name a few. In addition, record-keeping is the basis of the accounting and finance profession. Without documentation of financial events that have occurred, are occurring, or will occur, it is impossible to develop an effective financial plan.

In conclusion, no one should not have an accounting or finance professional that they can work with to devise a financial strategy and develop a sound financial plan. Remember, when you fail to plan, you plan to fail! You must have a strategy!