Cash flow is king
Making sure you don’t run out of money before you run out of life
No two people have identical financial circumstances, which is why it’s essential you have a custom financial planning solution that meets your individual needs and goals. Planning for financial success can be complicated in today’s world.
A broad knowledge of everything from complex retirement and investment products to risk management strategies and tax laws is required. Your financial roadmap should provide you with clarity about your future. It should detail every aspect of your vision – your hopes, fears and goals. It should also describe exactly how your future will look and help you to know exactly where you are headed and when you are likely to arrive.
Take some time and ask yourself these questions:
- How do I know I will have enough money for my future?
- Do I have the security of knowing where I’m heading financially?
- Am I going to be able to maintain my current lifestyle once I stop working?
- Do I feel empowered financially to live the life I want both today and tomorrow?
- Have I made sufficient financial plans to live the life I want?
- Do I have a complete understanding of my financial position?
- What is ‘my number’ to make my current and future lifestyle secure?
Understanding ‘your number’
Part of this process is to understand ‘your number’ – in other words, the amount of money you’ll ultimately need to ensure complete peace of mind in knowing your future lifestyle is secure and making sure you don’t run out of money before you run out of life.
By getting to know you and what you want to achieve, we will be able to provide you with a detailed action plan that is focused on you. Initially, you need to create a financial roadmap which enables you to make the right financial choices and get the balance right between current responsibilities and future aspirations.
Your specific lifestyle goals
All of this should be designed in a way so that you can achieve your desired lifestyle goals and objectives reliably over time and not run out of money. With a full understanding of your circumstances and priorities, we’ll provide you with advice that is custom-tailored to suit your specific lifestyle goals, and together you can develop a strategy based on your personal circumstances.
In order to develop your financial plan, you need clarity over your goals, your objectives and your motivations. An integral part of this process includes cash flow modelling. This illustrates what might happen to your finances in the future and enables you to plan to ensure that you make the most of your money to achieve your financial objectives.
Current and forecasted wealth
Cash flow modelling shows your current position relative to your preferred position and your goals by assessing your current and forecasted wealth, along with income inflows and expenditure outflows to create a picture of your finances, now and in the future.This detailed picture of your assets includes investments, debts, income and expenditure, which are projected forward, year by year, using calculated rates of growth, income, inflation, wage rises and interest rates.
In order to implement a detailed plan that outlines how to deliver your financial future, communication is vital. To ensure that, over time, you achieve your desired lifestyle goals, it is important for us to regularly review your financial plan and make any necessary amendments should your personal circumstances change.
Meeting your investment objectives
Cash flow modelling will us to determine what recommendations and best course of action are appropriate for your particular situation and the right asset allocation mix. The growth rate you require is calculated to meet your investment objectives and is then cross-referenced with your attitude to risk to ensure your expectations are realistic and compatible with the asset allocation needed to achieve the necessary growth rate.
Cash flow modelling enables us to analyse different scenarios based on decisions you may make – this could be lifestyle choices or perhaps investment decisions. By matching your present and expected future liabilities with your income and capital, we can make recommendations to ensure that you don’t run out of money throughout your life.
Regular reviews and reassessments
A snapshot in time is taken of your finances. The calculated rates of growth, income, tax and other information that are used to form the basis of any cash flow modelling exercise will always be assumptions. This is why regular reviews and reassessments are required to ensure you remain on track.
Nearly all decisions are based on what is contained within the cash flow: from how much to save and spend, to how funds should be invested to achieve the required return, so there is a lot that needs to be managed.
A lifetime cash flow plan should enable you to:
- Produce a clear and detailed summary of your financial arrangements
- Define your family’s version of the ‘good life’ and begin working towards it
- Work towards achieving and maintaining financial independence
- Ensure adequate provision is made for the financial consequences of the death or disablement of you or your partner
- Plan to minimise your tax liabilities
- Produce an analysis of your personal expenditure planning assumptions, balancing your cash inflows and your desired cash outflows
- Estimate future cash flow on realistic assumptions
- Develop an investment strategy for your capital and surplus income in accordance with risk/reward, flexibility and accessibility with which you are comfortable
- Become aware of the tax issues that are likely to arise on your own death and that of your partner
‘Running through the numbers’
With every financial corner you turn, it is important to ‘run through the numbers’, which will help you make the right financial decisions. It is important to be specific. For example, it is not enough to say, ‘I want to have enough to retire comfortably.’ You need to think realistically about how much you will need – the more specific you are, the easier it will be to come up with a plan to achieve your goals.
If your needs are not accurately established, then the cash flow will not be seen as personal, and therefore you are unlikely to perceive value in it. Some years, there may not be any change, or just small tweaks. However, in other years, there may be something significant. Either way, you will need to ensure things are up to date and to keep your own peace of mind knowing your plans are still on track.
Time to discuss your future financial goals and objectives?
Making provision for a secure future, be it for yourself, your family or your business, is one of the most important steps you will ever take. With our guidance, cash flow modelling can help you visualise your current financial position and demonstrate how your future financial goals and objectives can be achieved. Please contact us for more information – we look forward to hearing from you.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
Author: Adam Reeves
DipPFS Cert CII (MP&ER)
Independent Financial Planner, Wealth Manager, Director
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