Make a Covid Cash Plan
Updated: Jul 6, 2020
Figuring out how you will stand cashflow-wise may be the most important thing you do during the Covid crisis. Having a cash flow plan can give you both peace-of-mind about the state of your finances, as well as clarity about what's coming down the road.
What is a cash flow? It's simple, really. It is a chart that tells you how much cash you will have at the end of each month. You simply take the amount you have now, add the amount you expect to come in this month, then subtract how much you expect to spend. The difference between a budget and a cash flow is a cash flow strings together a series of months and carries forward the results from the previous months. The idea is to see how much you will have on hand at the end of each month. Hopefully none will be a negative number. But if there is one, you will have at least identified it in advance.I suggest creating one for the six months between now and the end of the year. Who knows what in the world things will look like after that?
The most important part of a cash flow is to have a good budget to begin with. Take some care with this. I always tell people a budget should take care of your basic expenses, take care of your well-being, pay debt and taxes, and leave something to save. Of course, everything is done in light of how much you have available to spend. And that comes down to income. Which is problematic for so many of us right now.
Nothing is normal now. Making a budget in all this uncertainty is hard, can be really really hard. And charting income, even for a few months, can become baffling to predict. Few people now have a cash flow that's the same as it would have been three months ago. This is now. And this is some crazy now. All the planning in a cash flow is contingent on income and to a lot of us that feels utterly unknowable now. Will enhanced unemployment benefits continue past July 31st? Who knows? Will you be able to resurrect business from pre-Covid days? Who can tell? How much will you make from a new side hustle? Sort of hard to predict.
It's the kind of situation where I like to remember what a mentor of mine once told me when I was struggling with something unknowable. "Begin where you are," he said. "Do what you can do, step out in faith, and expect the universe to help." How else can you do anything, really, but to begin where you are?
So, let's see where we are. At least some of most people's income is somewhat knowable, even now. For the time being, at least, there are unemployment benefits, PUA, PPP, and EIDL. Social Security, etc. Maybe a parent or child or sibling is providing some help. Or you are for them. Maybe there's some predictable income from retirement or profit sharing funds. From trusts. In any case you begin where you are. Then figure in anything due or possible in the coming months, then make realistic guesses about how much and when each of those bits of income will come in. The trick is you carry over the balance from the end of the month to the beginning of the following month. And you put any income expected, into the month you realistically expect to get it.
The whole idea is to figure out, the best you can, what the monthly landscape of your finances will look like. A financial road map to get you from here to there. If you take care to do it well, a cash flow can be clarifying, reassuring, even anxiety-relieving. It's vital in figuring if or when you might need to find more cash and/or spend a little less. Things get defined in real numbers, in black and white. You have a guide.
In my experience, having a cash flow in hand makes brainstorming about possible ways to bring in more money or to spend a little less, easier.
If you get stuck and need some help, give me a call.