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Cash Flow Modelling

Why is it vital that proper financial planning includes lifetime cash flow forecasting?

The start of a new year is often the time that many people decide; this is the year that they want to get their finances in order. If you are one of these, you may be thinking where do I start? Can I do it myself, or will I benefit from employing the services of a financial planning specialist.

If you are going to work with an expert, you probably won’t be surprised to hear that many of them do it in different ways.

Firstly, we recommend that you ensure your adviser is independent and not restricted in the advice they can give you.

But most importantly, do they do “proper” financial planning. By this, we mean are they going to work with you to build a lifelong financial plan, with cashflow forecasting, as without it, how do you know you are doing the right thing?

Lifelong financial planning is vital if you want to do your best for yourselves. Why? Quite simply, we are often living longer and therefore retirements last longer, but also because there are no longer generous pension schemes on offer and pension deregulation has led to a number of options that you can take. However, unless your adviser uses cash flow modelling software, how can they advise you about the best option for you and then monitor it with you, to ensure you stay on track.

All of our clients go through our financial planning process, which includes lifetime cashflow forecasting and at the end, they agree, they could not make the financial decisions with the same level of confidence, without the cashflow modelling we have done. They often comment that they can’t understand why all financial planners don’t work this way.

We have been working this way for nearly 10 years and I now find it impossible to contemplate real financial planning without it. We use the technology in front of our clients, as working through scenarios with you allows you to see the impact immediately, of any possible action or inaction you may take. Once you have ‘seen’ your financial future displayed visually on a lifetime graph, you will certainly understand the impact of your financial decisions.

Many clients are simply afraid they will run out of money too soon. Or, if too cautious, they may end up having not used their assets to their full potential. The latter case is not so uncommon and by modelling your future outgoings in many cases, as your financial planner, we will be able to point out that you have scope to spend more than you thought.

The modelling enables you to look 15, 20 or even 40 years ahead. It makes our clients feel more confident – that they have choices and options.

Lifelong cash flow forecasts are prepared, based upon assumptions that have been agreed between you and your adviser. Actually understanding your future cash inflows and outflows, future inflation, and future investment returns means you can make informed decisions, to maximize the life you want to lead. Additional forecasts can then be developed to identify ‘what if’ moments e.g. the premature death of either partner or if either partner became disabled and in need of long term care.

Increasingly, inter-generational planning is a major element - and not just to mitigate tax. Lifelong cash flow planning is used to identify the extent to which our clients could help family members without prejudicing their own financial security. Helping children or grandchildren with education expenses, to pay off student loans or to fund deposits for their first homes are high on the list of most clients' priorities.

If you want to find a financial planner, that uses lifetime cash flow forecasting, a good start is to look for one that has the “Certified Financial PlannerTM Professional” Certification. Or, works for a firm that is an “Accredited Financial Planning FirmTM “ (there are currently only 76 such firms in the UK & Leeds has a few) Here is a useful link https://www.financialplanning.org.uk/wayfinder/find-planner

Or drop me a line.

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