It is impossible to accurately predict what will happen in the future.
Because of this uncertainty, it can be difficult to plan too far ahead, particularly for long-term objectives like retirement.
Fortunately, we use cashflow modelling to give you an insight into the future.
Cashflow modelling software is an invaluable tool that can inform your decision-making and help you secure your long-term wealth.
Read on to find out how cashflow modelling works and how we can use it to give you valuable peace of mind and help you reach financial aims.
Cashflow modelling uses data to help you clarify your financial goals
An effective cashflow modelling tool uses data relating to your personal finances and future objectives.
This will include:
- Your financial assets, including pensions, investments, and other savings
- Details of your income and household expenditure
- Any future liabilities you may have
- An outline of your future plans, such as when you intend to retire.
We can also input other information that may have a bearing on your future finances. For instance, you might have plans to pay for the education of your children or downsize to a smaller property.
You benefit from a visual representation of your current and future finances
Using all the data we input, the modelling programme creates a year-on-year projection of your income, assets, and expenditure.
Rather than simply churning out rows of numbers, it will provide you with a series of accessible charts and graphs. This helps you assess your financial position visually, rather than having to interpret complicated data.
The results will highlight periods when you may have a financial shortfall, along with times when you will enjoy a surplus.
You will also be able to see how your spending or investment choices could affect your long-term financial position.
Importantly, the modelling tool can help you assess the effects of inflation, taxes, and different investment returns on your current and projected income and assets.
Through all this, you will gain a clear understanding of how your financial future may play out.
The detailed forecasts can support your financial decision making
The clear and detailed summaries of your future cashflows enable you to make informed decisions about your finances rather than relying on guesswork.
These decisions are likely to involve:
- How much you need to save or invest on a regular basis
- What level of investment risk you need to accept to meet your financial targets
- At what age you can comfortably retire
- Finding a sustainable level of expenditure that will not deplete your assets.
By running modelling projections regularly, we can help you adapt your plans as your objectives change. These reviews are particularly useful as you get closer to retiring and drawing an income from your accrued assets.
The modelling tool can help you assess the effects of different scenarios
Perhaps the biggest benefit of using cashflow modelling is that it can help you assess how different scenarios or events can impact your future finances.
These events could be ones that you have some control over, such as:
- Starting to draw income from your retirement fund
- Helping your children get on the housing ladder
- Moving to a more expensive property.
The tool can also help you simulate how certain events outside your control could affect your financial position. These may include:
- A period of high inflation
- A severe stock market crash
- A big increase in mortgage interest rates.
By running projections in this way, you will be able to assess how resilient your financial plans are, and whether you need to make any changes so you can still meet your targets.
It is important to understand the limitations of cashflow modelling
As you have read, cashflow modelling can be a very powerful tool that helps you visualise and plan your financial future.
However, it is important to be aware of the limitations of this kind of analysis.
Most importantly, the quality of the projections is driven by the accuracy of the information we input.
This means it is important that the figures you provide are as accurate and up to date as possible.
Secondly, it is crucial not to rely on one single set of data produced by a cashflow modelling tool. Your finances are continually evolving, and the external factors that could affect your future position will also be subject to change.
This means that you should be looking to review your circumstances regularly, so we can run up-to-date projections and ensure your plans stay on track.
We use cashflow modelling to inform your annual review process
As you have read, no one can predict what will happen in the future. All you can do is use the best information available to make the most accurate judgments possible.
It is likely that your financial, employment, and personal circumstances will change as you go through your working life.
We review cashflow forecasts based on your finances at least annually. Consequently, you have the peace of mind that comes from knowing you remain on track to meet your objectives and enjoy financial security in retirement.
Get in touch
If you have any queries about your own financial planning arrangements, please get in touch.
You can email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute financial and legal advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate tax planning or cashflow planning.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.