Cash flows are important. Whether in business or in your personal life, understanding what is going out and what is coming in, is an essential aspect of managing finances. However, not all cash flows are created equal, and understanding what is necessary to achieve your goals is important.

Household budget

You probably already have an understanding of cash flow through your household budget and your experience of balancing it. The act of taking a look at your monthly income and outgoings is extremely useful for handling your personal finances. If it is not something that you currently do, then consider looking at the next three or six months and determining where savings can be made. By identifying the areas in which you are overspending you can improve your financial situation. For example, monthly subscriptions that you have long forgotten, unnecessary purchases that end up in the bin or books that you are determined to read one day but you know will just be gathering dust on that shelf for years to come. 

Once you understand the figures of your income and outgoings you can make a plan, a budget, to achieve your goals. While this type of cash flow can make a huge impact, when we talk about managing your cash flow in a professional sense, we are more likely referring to the long term cash flow modelling tools that we use to build financially independent lifestyle plans. 

Long term planning tools

We use these tools not only to consider your current income and outgoings, but also to calculate and plan for your future assets and investments. We look into your personal finances in greater detail, examining your income, investments, debt and expenditure, not just as they currently stand, but how they can be expected to develop over time. It requires consideration of a wider range of factors, including but not limited to, wage increases, inflation, interest rates and expected rates of growth. Cash flow modelling tools allow us to make tweaks to short term factors and see the impact that those small changes can have over a longer period of time. This means we can explore different options, planning for a variety of potential scenarios and giving you the greatest clarity and flexibility with which to make informed decisions about your finances. 

It is a uniquely powerful technique for detailing the reality of your finances, and helps immeasurably with the ability to formulate a realistic and impactful plan to deliver your ideal outcomes, whatever stage of life you are at.

Why long term planning tools are particularly useful

Understanding why these tools can be so impactful is relatively simple. Clarity is absolutely key to good decision making, and by being able to analyse which measures you can take to achieve the desired effects, brings a great sense of clarity. 

Once you have a relatively reliable picture of how your finances are likely to develop over the next five, ten or twenty years, you can make plans to minimise tax liabilities and maximise profits. Without this sort of solid foundation to your planning, you are at much higher risk of missing opportunities to improve your financial lifestyle or even sabotaging your efforts entirely.

The earlier you decide to look to the future, the more control you will have. When it comes to the matter of transferring your estate to family or to the causes which are important to you, a clear and early forecast is a fantastic way to develop peace of mind around the impact you will leave behind. 

Planning your retirement

As mentioned previously, at whatever stage of life you find yourself, a structured cash flow model will be useful. Perhaps you are in your forties or fifties and your pension pots are spread far and wide. You may have a mortgage, some investments and savings in various places. By bringing those elements together to develop a clear and total view of your finances, the options which are available regarding your retirement and its enjoyment, become much more understandable and achievable. It improves your chances of having a retirement that you can enjoy. 

With online tools and traditional accounting software now more accessible to the average person, there is a case to be made for a DIY approach to balancing your books. However, we recommend putting your finances in the hands of a professional. Experienced financial planners come with a reliable and tested service. 

It is important to note that a cash flow model should never be taken as a guarantee of outcomes. Basing a forecast on previous performance and logical assumptions of future conditions will give as clear an indication as you could realistically hope for, and is invaluable for achieving a clearer view of your financial future. However, it should be reviewed regularly and cannot account for all possible eventualities. As always, if you have any concerns and questions about cash flow modelling or financial planning in general, it is recommended that you speak to a professional about your unique personal circumstances.