How To Use The Financial Planning Pyramid (And Why Cash Flow Is So Important)

Where are you in the stages of your Financial Planning? Now, every business is different, and every entrepreneur has a unique money journey. But there are some stages of the path to financial freedom that are pretty universal for everyone. In fact, there’s a handy tool called the Financial Planning Pyramid that I has helped not only me, but also my clients determine where they are on the road to financial freedom.

What is the Financial Planning Pyramid?

It’s actually a simple graphic that shows you where you are with your money, and the next steps to set the stage for your financial future.

Of course, maybe your financial future is the LAST thing you’re thinking about right now.

Maybe all you can think about is keeping your business bringing in enough money to stay alive. (I’ve seen that a LOT over the years as an Entrepreneur, and have definitely been there myself!)

But here’s the thing…

It’s never too early to start planning for your financial future. No matter how much income your business brings in today, you can start creating the foundation for a bright financial tomorrow.

But what does a “foundation for your financial future” even mean, and where does this Financial Planning Pyramid come in?

That’s what we’ll be talking about today!

Basically, the Financial Planning Pyramid is a representation of the stages of financial growth. And it all begins with the foundation for all things financial stability: a positive Cash Flow.

The foundation of the pyramid is a steady and reliable Cash Flow, and the top is where you plan your lasting legacy. In the middle we have all of the structural steps you need to get from the bottom to the top, including Risk Management, Investing, and Tax Planning.

Here’s a little graphic that gives you a picture of what this pyramid looks like in its entirety, from the website MoneyUnder30.Com:

Now, take a deep breath, let go of all judgment, and ask yourself, Where do I feel like I land on this pyramid right now?

Do you literally have NO idea, or does one of the steps jump out at you right away and say “HERE”?

Either way, I’m going to break down all the steps on the Financial Planning Pyramid. I’ll help you assess where you are, and get some ideas flowing about how you can uplevel to the next step on your financial planning journey!

Now, before we go any further, remember…

This isn’t about judging yourself. It’s not about getting stuck in where you think you “should” be right now. All we’re doing is taking a look at where you are. We’re honoring that space. THEN you can decide what the next best steps are for you to get you to the next level.

Got that? Great! So now, let’s look at the levels of the Financial Planning Pyramid! We’ll make some sense out of it all so that you can get on the road to the next step in YOUR financial planning journey.

I’ll walk you through the steps in this video, and describe them each in the space below!

Level 1: A Positive Cash Flow

The first step is to create a positive Cash Flow. What does this mean, exactly?

A positive Cash Flow means that you’re bringing in more money that you’re spending. It means that your business is profitable, you’re proactively paying your taxes, and you’re paying yourself a reasonable salary.

EVERYTHING builds off of a positive Cash Flow. It’s the most important step, but it also can be the most challenging one to achieve.

So, if you’re at this step on the pyramid, what is one of the quickest ways to shift your Cash Flow in your favor? The answer is setting up a budget. Creating and sticking to a budget is the fastest way to start maximizing your Cash Flow.

Start by setting up a budget for both business and personal finances, and stick to it. This makes keeping more of the money you make AND shifting your Cash Flow to the positive side a LOT easier (and faster!).

Level 2: Risk Management

What does “Risk Management” entail? It’s simply setting up structures to protect your money and assets as your business grows. Risk management is about assessing the areas where you might be at risk for losses, and taking the proper steps to mitigate those risks.

So what does this mean in practical terms?

Effective Risk Management strategies include carrying insurance policies such as life, disability, and health insurance for yourself and liability insurance for your business. (Find out more about how to protect your business with liability insurance HERE!).

Risk Management also includes ensuring that you have enough diversity in your income so that you’re not dependent on a single source. This includes things like checking for diversity in your income (i.e. multiple streams of income). It’s also about managing your investing strategies to ensure they’re performing well, and creating an emergency fund and savings plan.

You’ll also want to include things like credit score monitoring to protect yourself and your business against fraud. It’s also advisable to check your business for it’s liquidity, i.e. your ability to get your hands on quick cash if you need it.

Another thing is your Net Worth, or your debt to income ratio. For example, if you own things like a house or a car, those are assets. What you owe on said house or car, however, is a liability. You can see how this fits into the debt to income ratio, so keep an eye on this and do what you can to shift away from debt (liabilities) and toward income (or assets).

The goal is to grow and protect your assets, and Risk Management is the way to do this. It’s where you ensure that everything you are building is being protected and maximized. This way, if your business takes a hit (such as losing an income stream) you don’t lose everything and have to start from scratch.

So at least once a year, do a full Risk Management assessment in both your business and personal life, and take action accordingly. You’ll be glad that you did!

Level #3: Investing

Investing is about both long term and short term returns. Once you’ve got a positive Cash Flow and you’re keeping up with Risk Management, start looking at investments that cover both the long-term and short-term parts of your financial plan.

For example, consider long-term investment strategies that support your retirement plan , and also work in some short-term investing strategies that help you create passive income.

By the way, investing is ALSO about using your Cash Flow to pay off debt. Paying off debt in itself is part of a solid investment strategy, so definitely keep this in mind when you’re getting into this level of the pyramid!

(P.S. did you know that you can get started investing at any time, and without having a ton of money at your fingertips? On this post I show you how to start with as little as $5!)

Level #4: Tax Planning

Next, it’s all about proactive Tax Planning. The point of this is to ensure that you’re in the RIGHT tax bracket, which means you’re paying neither too much nor too little taxes. The goal is to balance taxes and profits (find out why this balance is so important HERE!).

Proactive tax planning means working with your CPA to help you maximize tax credits, investments, etc. to ensure you’re in the RIGHT tax bracket. This is all supported by your Cash Flow, protected by your Risk Management, and funded into your Investment strategy. (See how this pyramid builds on itself as you go along?)

So plan your taxes so that you’re paying enough, but not too much. (Because after all, I bet you’d rather pay more into your future retirement than into taxes, right?)

Level #5: Estate Planning

Now, this part might sound WAY in the future for a lot of us. But honestly, it’s never too early to start thinking about your legacy, and where you want your money to go when you’re no longer on this earth.

So what does “Estate Planning” mean?

This is about planning for your legacy. It’s determining how your assets will be preserved, managed, and distributed after your death in the most tax/fee efficient way possible.

Proper Estate Planning also ensures that your assets stay out of probate (i.e. the legal process after someone dies) and go directly to your beneficiaries. (Note that beneficiaries could be people, charities, or whomever/whatever you choose.)

I’ve taken a lot of estate planning CE credits recently, and it’s amazing how many of us don’t know about this level of the pyramid. There have been stories of even the richest of celebrities who lost millions in probate because they didn’t set their Estate Planning in the right way.

Even worse, a lack of proper Estate Planning can cause a lot of friction with family members. After all, you probably don’t want your loved ones fighting over a chair or a bank account when you pass away, and this is all too often what happens.

And what’s more, if you don’t plan your estate properly, guess what can happen to your assets? In the absence of beneficiaries, the state steps in and might take over everything. Now, I’m guessing that you’d much rather have loved ones or charities that matter to you receive the fruits of your labor in this lifetime!

So when you get to this level (and even before), start thinking about how you want to pay your assets forward when you pass away, and start building that peace of mind that everything you’ve built in your life will go where you want it to go.

That’s it! The five levels of the Financial Planning Pyramid, and how to make the most of each step.

Now, keep one thing in mind. The pathway up the pyramid isn’t 100% linear all the time!

There are little things you can do in each bucket along the way. You don’t have to have every single step perfectly set before you take action at another level.

BUT, the first and most important step is Cash Flow. So once again, start here.

Then, start dreaming big and start aiming for your legacy, maximizing each step of the pyramid along the way!

Now, what questions do you have about the Financial Planning Pyramid? Leave me a comment and tell me where you think you land right now, and ask any questions about how you can make the most of where you are!

Until Next Time,

Love, Light, and MONEY, Honey…

Kaylee

P.S. THE most important step is Cash Flow. I’m passionate about it, and I have an amazing course that will help you start building up this all-important foundation to your financial future!

It’s called the Cash Flow Crash Course, and it’s based on the steps that I’ve used myself to go from $19K/year to $190K/year (and growing!) in my business!

I’ve learned these steps over 15 years of trial, error, and success. They’ve made a huge difference in my life and in the lives of my clients. And now, I’ve created a simple and powerful course to help you start shifting your Cash Flow fast!

Ready to learn more? Click HERE and grab your spot in this empowering and game-changing course TODAY!