We all want to plan for the future and get a better understanding of how our financial future may look but often we don’t know where to start. Even though you may have access to pension projections and a rough idea what your house may be worth in 10 or 20 years you can’t visualise a future plan in your head.
That’s why cashflow modelling was introduced which builds in all the things we struggle to calculate manually in our head like the effects of inflation, taxes, the timing of cashflows and specific dates in the future when we may want to pay for a wedding or retire for example.
Cashflow modelling gives you a visual representation by way of charts and graphs which are easier to digest for most of us than facts and figures. It allows us to visualise how our wealth changes over time and the affordable levels of income we can take in the future depending our unique plans and needs.
A cashflow model is not a guaranteed method by any means of predicting the future just as no one can predict the future interest rates or the future pension legislation but if they are continually updated annually or when any significant changes take place then it can be a very detailed best-estimate for our future.
Like any modeller it is built very much with the idea that if you put junk in then you get junk out which is why we often need help to guide us through the process and make sure we are capturing the correct inputs and therefore the correct output. I’ve presented cashflow models to clients who have been astounded by their ability to retire early or pay for an expensive holiday when we project investments and pensions into the future.
Cashflow models are sophisticated now and offer Inheritance tax projections and stock market downturns can be built in to look at a variety of outcomes so we can measure the likelihood of values in the future. Growth rates are hard to forecast but it’s best to be conservative we don’t want to create a utopia based on an unlikely future.
It’s important all info is captured you don’t want to forget about an old workplace pension or a credit card debt you haven’t factored in. You want to think about how your life may change in the future if the kids were away at university would you spend less feeding them but perhaps more on holidays and weekends away?
Cashflow modelling works best when it is aligned with your goals and values for your future. You can’t build a modeller for any client without spending time getting to know their thoughts, desires, values and wishes for their family and their future. We are all unique as individuals and every cashflow model is unique which is why it’s so important to regularly review and keep your future plans updated so you stay on track to reach your goals.
Imagine how you would feel if you could potentially afford a holiday home much sooner than you anticipated or if you could easily help your children on the property ladder without impacting your lifestyle. Start planning for your future today perhaps cashflow modelling can change your future.