Have short-term financial goals like vacations, tuition, or a home renovation? Keep your money from sitting idle in low-yield checking or savings accounts. In this video, Carmine Coppola explores the concept of strategic cash flow planning, a method that aims to optimize returns for short-term financial needs.
- Short-term financial goals
- Investment options for short-term needs
- Real-world example
Today I want to touch up on a topic I like to call “strategic cash flow planning.” Essentially what that is, is it’s taking money you have set aside for your short-term financial goals such as tuition payments, vacation, or even maybe buying a boat, and maximizing return by taking little to no risk at all. Let me show you how we do that.
Look at Frank’s cash flow he needs for the next year. He has a family vacation in December, college tuition due in January, a new car in February, a big home renovation he plans on doing in March. He has his daughter’s wedding he needs to pay for an April, and new furniture for that renovated house in May. And in July he needs $100,000 for a private investment opportunity. All this totals to $570,000. Here’s what we can do to be strategic with Frank’s cash flow stream.
The first thing we need to do is decide on which investment vehicle to use. For Frank, we’re going to stick with US Treasuries because his cash flow needs are under one year. Other options may be CDs, money markets, or even structured products. Here’s a cash flow portfolio we designed for Frank. We set this up so the correct amount of money comes due when Frank needs it for a specific cash flow need. We do this in order to maximize the return on the entire portfolio. You’ll see here that for this portfolio, the yield is just over 5.4%. The total money that he’s going to invest will be about $570,000.
Here’s what the portfolio’s cash flow will look like over the next year. You’ll see that each Treasury will mature in the month that the money is needed. If you look closely, you’ll notice that the money coming due is slightly higher than the amount that Frank needed. For example, he said he needed $250,000 for his home renovation. When that Treasury matures in March he receives just over $258,000. Looks like Frank can splurge on those countertops after all.
The total amount of money that he’ll receive over the next year on this portfolio will be $589,881. If you recall, Frank said that he needed about $570,000 to fund his short-term goals over the next year. By being strategic in his cash flow and investing that $570,000 into this cash management portfolio, he was able to get back over the next year $589,881. So he’s able to gain almost an additional $19,000 for money that would have been sitting in a checking or savings account anyway. That’s how being strategic with your cash flow can really benefit you.
If you have money sitting in the bank or under your mattress, it’s really advisable to look into something like this just to maximize your return or even put in less money to achieve your goals. So if you guys have any questions, let us know. We’re here to help.
Strata Capital is a wealth management firm serving corporate executives, professionals, and entrepreneurs in the New York Tri-State Area, focusing on corporate benefits and executive compensation. Co-founded by David D’Albero and Carmine Coppola, the firm specializes in making the complex simple to ensure clients feel confident in their financial decisions. They can be reached by phone at (212) 367-2855, via email at firstname.lastname@example.org, or by visiting their website at stratacapital.co.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The information contained above is for illustrative, educational, and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
Cornerstone Planning Group, Inc., (“CSPG”) is an SEC registered investment advisory firm. The information contained herein should not be construed as personalized investment advice and should not be considered as a solicitation for investment advisory service. The information (e.g., tax ) provided is believed to be accurate however CSPG does not guarantee or otherwise warrant such information. For more information regarding CSPG you can refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov) and review our Form ADV Brochure and other disclosures.