This is just one of the questions that cashflow modelling can help answer. As financial planners we use cashflow modelling daily with clients to help run different life scenarios and address any concerns about their future.
Building your life plan – The importance of cash flow modelling
We build your life into our planning software, and this allows us to have detailed life conversations about important life decisions considering clients important goals and aims. I like to imagine it as a ‘financial navigation system’ to help guide you through your financial decisions. The more exact the information provided, the better the forecast will be. Please remember that these are only forecasts and things can change that are not foreseeable and it’s so important to review this regularly which is why we meet with clients at least annually to update their financial plan.
Visualizing assets, needs, and future projections
When conducting real financial planning it helps clients picture their assets and by adding a true reflection of their spending needs and wants, we can look at each year of their life with certain assumptions built in. We use set assumptions on investment returns, property growth and importantly inflation. These assumptions are based on historic information and are the best we have to forecast the future.
It is so important to make sure when looking at these assumptions that people are not over emphasising investment returns and under estimating what they are spending.
Securing financial stability for long term peace of mind
By looking at the cash flow model over the course of a client’s life we are stress testing and making sure the client is not likely to run out of money. We also run ‘what if’ scenarios on important matters like losing a partner from the household due to premature death. By having these difficult conversations, we can try and mitigate some of the risks in life that most people don’t want to think about.
Cashflow modelling helps when it comes to investment decision making and testing market crashes to see if the plan is sustainable throughout a client’s life.
Overall, it is a powerful tool we use to help articulate a client’s life and help with key financial decisions.
