Make cash flow analysis part of your financial plan

As a doctor, you are probably able to enjoy a more generous lifestyle than most other families. But having that lifestyle also means you will require more savings to support your standard of living in retirement.

The IRS-imposed limits on tax-deferred retirement plan contributions may not be enough to enable you to reach your retirement savings needs, and additional savings may be required to enable you to support your desired lifestyle. A comprehensive financial plan is essential to attaining this goal, and cash flow planning and analysis are key to making such a plan work.


Such information also is useful in tax planning. For example, there may be years when it would be better from a tax standpoint to defer a bonus into the following year.

Similarly, it is essential to identify categories of cash outflows. These categories might include debt service, living expenses, itemized deductions, insurance expenses, retirement contributions, savings/investments, taxes, etc., as well as the detailed expenses within each category.


Identifying outflows in this manner helps distinguish between household expenses and outflows. Taxes, retirement contributions, and savings/investments are considered cash outflows rather than household expenses.

A cash flow analysis, in short, separates household expenses from other outflows. Performing this kind of anlysis is helpful to the process of planning discretionary spending and forecasting retirement spending needs.

In the absence of a concrete financial plan, the excess cash inflows that are not needed to support necessary expenses-mortgage, utilities, food, insurance premiums, taxes, etc.-can be spent on vacations, recreation, clothes, and luxury items. On the other hand, implementing a comprehensive financial plan quantifies long-term goals so that you can determine the levels of savings required to support such goals, including and, most commonly, college savings and retirement savings.


The financial planning process helps identify the annual savings requirements for each goal, and a thorough cash flow analysis will identify the availability of sufficient cash surpluses to support these savings requirements so that you have adequate funds available to reach these milestones.

Families often believe that they don't have enough money left over at the end of the day to contribute to college or retirement savings accounts. A detailed cash flow analysis will help you find areas where you might reallocate spending to reach these and other long-term goals.


Further, you can covert any cash that might be available beyond what you need to support long-term goals to discretionary spending items that can enhance your current lifestyle, knowing that in doing so you aren't compromising future goals.

If you are able to identify and quantify your lifestyle goals, then you can allocate the cash resources toward them so that, if properly managed over time, you attain your goals-and peace of mind.

The author is chief financial officer and senior wealth advisor with Hoxton Financial in Winchester, Virginia. The ideas expressed in this column are hers alone and do not represent the views of Medical Economics. If you have a comment or a topic you would like to see covered here, please email

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