Contained In BSM's Financial Planning Software are Important Principles that Structure and Guide

BSM's Balance Sheet Principles

BSM’s Application of Key Balance Sheet Principles in its Financial Planning Software Ensures that the Cash Flows Associated with Each Need/Goal are Valued in After-Tax Dollars and Properly Ordered Across Time Horizons

Everyone understands the flow of cash through a checking account — the account is not viable unless every withdrawal can be paid. Boiled down, a financial plan works similarly except that a cash-flow forecast is prepared for future years using today’s values as the base; a financial plan’s failure or success hinges on funding each cash outflow over time. This seemingly simple concept carries four pitfalls that may render faulty forecasts.

  • After-Tax Cash Inflows

Incoming cash arrives from several different sources . . . compensation . . . dividends . . . interest income . . . realized gains . . . asset sales. Against each of these sources, a tax exposure typically exists that reduces the dollars available to spend. If an after-tax adjustment is not made, then a wealth-destroying gap arises since each dollar paid to fund the gap in the present loses its compounding value in the future.

  • Compounding Cash Outflows

Only in the rarest of circumstances will an item that uses cash decline in value over time. The ever-increasing march in compounded costs contrasts with the risk that cash inflows can decline in value. Should a decline occur when a bill comes due, a future dollar must be moved into the present to fund the gap and, again, that dollar’s compounding power is lost.

  • Cash Inflows Commingle in Time 

When considering a variety of spending categories, common financial planning processes view each associated cash outflow as a separate event. In truth, for any given time horizon, cash out-flows coming due for a variety of events commingle in time; simply, they all must be paid.

  • Dedicated Sources Restrict Flexibility 

Retirement portfolios fund retirement outflows. Education  portfolios fund education outflows. Complicating the cash-flow matching process are the restrictions that exist with these dedicated portfolios. Should a dollar from a dedicated portfolio be required to fund a non-dedicated need, not only is a dollar lost to future compounding, but any penalties further reduce the amount available for growth.

Financial Wealth Need Group and Horizon Balance Sheet Combo