Cash Flow Management Advice from Ben Franklin, Part 1: Prepare for the Worst

Way back in the ‘60s the TV show “Bewitched” was mandatory viewing for baby boomers like me. After all, how could you resist a series that regularly showcased the latest model sports cars (Chevrolet sponsored the show), driven by two completely different looking husbands with the same name, while also featuring guest appearances by Napoleon, Willie Mays (who we learn is actually a warlock) and, in one of my favorite episodes, Benjamin Franklin?

In the Ben Franklin episode a well-intentioned but absent-minded Aunt Clara tries to fix Samantha’s broken lamp but bungles the spell and instead delivers Mr. Franklin to the Stevens household. Then, in an ill-advised move, Sam escorts their guest on a tour of the town. Ben is arrested – for attempting to steal a fire engine. Yes, that was TV in the 1960s.

But as silly as the plots were, occasionally there were pearls of wisdom in the dialogue. For example, as he was preparing his legal defense Ben Franklin offered a perspective on setting expectations that has stayed with me ever since. Here’s what he said: “Optimists believe that all will turn out for the best. I on the other hand prepare myself for the worst. Should it not occur I am delightfully surprised.”*

Expect – and plan for – unexpected monthly

and long-term cash flow shortfalls.

This advice might not apply to all things but I’ve found it very helpful when managing cash flow, particularly in the current economic environment. Another way to look at it is to expect – and plan for – the unexpected. Here are some typical sources of both short-term and long-term cash flow shortfalls. (The larger and more dangerous long-term cash flow risks are shown with an exclamation point.)

Interruptions to INCOME

Job-related:

. No raise in salary, no bonusrn. Reductions to employer savings/retirement accountrn! Loss of job

Housing: ! Tenant vacancies in rental properties (plan on 20%)

Supplemental Income: . Changes to alimony, child support & other support payments
Unplanned EXPENSES

Job-related: . Increased health care costsrn. Increases in other employee benefit costs ! Income tax balance due

Housing: . Increased property taxes and insurancern! Home repairs/improvements . Utility price increases (heat, water, electric)

Transportation: . Public transportation price increasesrn! Vehicle repairs or replacement

Communication: . Computer repairs or replacementrn. Cell phone expenses

Medical: ! Unanticipated medical expenses
You might ask, “Why should I even estimate my short term, or monthly, cash flow?” Because your monthly cash flow is your budget. It’s your number. If you don’t already know it, it’s important that you learn it now. Not only does it define how much you can currently afford to save each month (if any), it also helps you determine what your monthly living expenses will be during retirement.

To help you measure and manage your monthly cash flow, we created the 80/20 Worksheet™. If you haven’t already done so, just visit the Cashflownavigator website to fill it in. It’s quick and easy – and free. But when doing so, follow Ben Franklin’s advice and be sure to build in a cushion. Better to be pleasantly surprised at the end of the month than to find yourself scrambling to cover a cash flow shortfall.

Larger, long-term cash flow disruptions pose an even greater risk to your financial security. If you’re unprepared for them, you put at risk the achievement of your ultimate goal, financial independence. Fortunately, you can build a cushion to offset this risk as well, by always keeping at least 6 months of living expenses (6 times your monthly “number”) in savings.

As much as we might hope that our household’s income will be uninterrupted, and that we won’t incur unplanned expenses, hope sometimes must give way to reality. Unexpected things do happen. Be sure to prepare for them by following the advice of founding father, inventor, and cash flow philosopher Ben Franklin: Prepare yourself for the worst. If it doesn’t happen, at least you’ll be pleasantly surprised with a cash flow surplus.

In Part 2 of this series, Cashflownavigator’s roving reporter C. Florence Gaynor (C. Flo for short) tracks dow
Ben Franklin in person – or at least virtually – for an exclusive interview in which he shares additional insights and advice on maximizing your cash flow.

*”Bewitched,” season 3 episode 13, December 1966. Screen Gems Corporation.