Cash flow modelling

Why cash flow modelling is vital when planning for your future

If you are looking at how you are going to fund your retirement you might also be wondering how to know what you can afford to spend now.

You don’t want to leave yourself short, but you don’t want to missing out on living life to the full – this is where cash flow modelling comes in.

You might be wondering ‘what is cash flow modelling?’ and why it could be useful. Cash flow modelling is something which can be used to look at your current situation and forecast your future financial position.

A cash flow model can show you in real time how much cash you could accrue for your future and whether you are on track to achieve the future lifestyle you want.

You and your financial adviser can explore different scenarios and how they will impact your future income.

It is a much more detailed and accurate way of answering questions like;

• Could I take early retirement?
• Am I going to run out of money in later life?
• Can I afford to take that once in a lifetime round-the-world trip?
• Will my dependents have to pay inheritance tax?
• How can I make my income more tax efficient?
• Will my family be provided for if I die suddenly?

Your financial adviser will look at your inflows (income) and outflows (expenditure) to paint a picture of your finances both now, and when you retire.

They will collect information about your financial situation now, including your income, outgoings, savings and any pension plans you might have.

Your financial adviser will then use specialist software to analyse this against your future desired income. You can model the impact of things like when you retire, big holidays, or any gifts you want to make to your children.

The software will then be able to make a long-term forecast of your finances, identifying any situations in which you might be left short.

You can also look at how outdoor influences might affect things, like for example if there was a change in the return on your investments or a fall in the market.

It’s also possible to model how different ways of taking income can affect your tax bill – and your overall wealth – over time.

Answering the big questions around whether you can do more and ultimately live more, is a more relatable way of planning for your future, than comparing pension schemes, or savings products.

Our financial advisers can help you plan for your future, get in touch.