Mary Ragsdale, Director of Private Banking Strategy
Director of Private Banking Strategy
Sean Faeth, Director of Private Banking Solutions
Director of Private Banking Solutions

In this podcast, Mary Ragsdale, Director of Private Banking Strategy, and Sean Faeth, Director of Private Banking Solutions, discuss credit strategies that can help manage cash flows to more efficiently meet your financial needs.

Audio: Optimizing Your Cash Flow for Greater Financial Flexibility

Transcript: Optimizing Your Cash Flow for Greater Financial Flexibility

Interviewer: Mary Ragsdale, Director of Private Banking Strategy, Wells Fargo Private Bank
Interviewee: Sean Faeth, Director of Private Banking Solutions, Wells Fargo Private Bank

[Mary] Many of us experience short-term or unanticipated cash-flow needs from time to time. Maybe you’re buying a house and spot the perfect property, but it may take time to liquidate the assets needed to pay for it.

Hello, I’m Mary Ragsdale, Director of Private Banking Strategy. Joining me to discuss how the sensible use of credit may help you manage and optimize cash flows to more efficiently meet your financial needs is Sean Faeth, Director of Private Banking Solutions.

Sean, can credit can be a valuable tool for clients to use to optimize cash flows and income?

[Sean] Appropriate credit strategies can be leveraged to smooth out the cyclical or variable cash flow patterns that we all experience from time to time. Credit can be a useful tool to help you meet financial commitments without depleting cash reserves or liquidating well performing investments that can also trigger tax implications. By borrowing prudently, you can more efficiently achieve your financial goals and maintain liquidity for future unforeseen events.

[Mary] Sean, can you give our listeners another example of a situation where using credit would make sense to help manage cash flow.

[Sean] Certainly, Mary. Let’s say, for example, your income comes from a large, one-time bonus, company dividend or some other intermittent payments. You may find yourself digging into cash or emergency funds, selling securities or using more expensive short-term borrowings t to meet an unexpected expenditure, like a significant home repair. Using these funding sources to meet a short term cash flow need can be inefficient as well as costly.

If this is your situation, you may, instead, consider using a secured loan or line of credit to help keep your financial goals on track and to provide you with the resources you need to respond in a timely and appropriately manner to opportunities or needs as they come along. Thoughtful use credit can help you realize a greater level of financial flexibility. [Mary] And, by matching the time horizon of your credit facility with your expected income, you can potentially smooth out your cash flow over time.

[Sean] Definitely, in this instance you can take a proactive planning based approach to managing cash flow by matching your borrowing term and structure to align with your anticipated income flows. By leveling your cash flows, you are positioned to manage your finances more confidently over time and remain focused on achieving the life, family, and financial goals that you have planned. And, Mary, appropriately integrating borrowing strategies to stay on track with your planning objectives also offers a number of other benefits.

[Mary] Sean, can you give us some examples of those benefits?

[Sean] Sure. Let’s use the example of a major home renovation. When you are preparing for a significant financial event like an expensive home renovation, we always recommend sitting down to discuss options with your wealth advisory team. After reviewing your financial position and your overall wealth plan, you might have a few options to consider. For example:

  1. you could pay cash—although this could significantly deplete your cash reserves,
  2. you could choose to liquidate some concentrated stock positions or
  3. you could utilize a low rate borrowing solution, like a home equity line.

It’s important to consider that home equity lines and loans may offer tax deductibility and also provide flexibility in terms of payoff dates. In this case, you may find that home equity borrowing is more tax efficient and financially advantageous to finance home renovations. You achieve your goal and avoid depleting your cash position or disrupting your investment strategy by liquidating stock.

In addition to helping you manage your cash flow, other good examples of smart credit strategies are if you wish to protect estate trust structures, you are planning a major purchase, or you have a concentrated position in a family-owned company and want to diversify your asset portfolio.

Borrowing can keep you on track with your objectives in these situations and avoid compromising your financial plan. Keep in mind that you should consult your tax or legal advisor to determine the impact these strategies may have on your own individual situation.

[Mary] Clearly, Sean, there are normal risks associated with borrowing and you will want to discuss these strategies with your advisors before you make any decisions.

[Sean] Absolutely, Mary. For example, consider whether your year-end bonus or dividend payment could be less than you anticipate. The relevant question here could be: Should you wait to make the lifestyle purchase that you are planning? And, be sure you fully understand the risks associated with borrowing. You and your wealth advisory team can consider the risks and the benefits of using credit to optimize cash flows, helping determine an appropriate strategy is for you based on your individual circumstances.

[Mary] Yes, and it also is possible that current tax deductions may not be available in the future, so you will want to discuss these carefully with your tax advisor before you make any decision to borrow.

We recommend considering lifestyle and family goals with your advisors as part of your planning process, rather than in isolation, to determine whether credit will offer you the flexibility and financial choices to meet your overall needs.

I would like to thank you, Sean, for joining me in this discussion and thank you to our audience for listening.