Financial calculators and simple illustrations are one-sided solutions. All financial problems and solutions occur within the total financial situation of an individual. Financial calculators and simple financial illustrations only consider a limited set of factors – just the factors that are relevant to the particular calculation.

For example, a retirement calculator prompts for desired retirement income, years until retirement, and the amount of retirement savings. After adjusting for inflation and anticipated earnings, it determines that additional monthly savings of $1,000 are needed from now until retirement. This is a one-sided solution: if everything else remains the same, then this solution works. BUT, in real life, where does the $1,000 month come from?  Will other expenses or savings have to be reduced to save an additional $1,000 a month? In reality, expenses and/or discretionary spending must be reduced by $1,000 per month in order to save an additional $1,000 a month – that is the other side of the calculations.

A cash flow analysis considers not only the benefits of the solution, but also the costs of the solution. For the above example, a cash flow analysis would determine that the same $1,000 of additional savings is necessary, but it would also show the impact on other expenses and help determine which expenses needed to be cut, or other assets used to make the solution work. If assets that would have been used for retirement are now used for the additional savings, then it is not a solution. It would be the same as moving money from one pocket to the other with no net benefit.

Simple illustrations and calculators are great for providing pieces of the puzzle. This can be very useful in setting expectations of a solution. Only with a cash flow analysis can you show both the benefits of a solution and its impact on other financial items. Only with a cash flow analysis can you show the other side of the solution.