Financial planning relies on developing a roadmap for your clients designed to get them from where they are today to where they want to be in 10, 20, or 30 years.
Attempting to predict or forecast the future can be a complicated process. It is important that it isn’t based on guesswork, instincts, or intuition. A good plan is built on hard evidence and data with one eye on the past and the other firmly fixed on the future.
Cashflow modelling is a method of using data and technology to project a clients’ current and future needs, and prepare for any potential outcomes along the way.
Read on to discover what cashflow modelling is and three crucial ways it might help your clients to achieve their long-term goals.
Cashflow modelling helps your clients develop a road map towards their long-term goals
At Delaunay Wealth, we look at your clients’ whole life, not just the money sitting in their bank accounts. We want to understand their hopes and dreams, and those of their family.
It is only once we’ve gained an intimate understanding of their life and expectations that we’ll start discussing the numbers involved.
A financial plan takes a long-term view and aims to help your clients reach their goals over years and decades, while providing them with security, emotional reassurance, and growth aligned with their personal tolerance for risk.
In order to achieve these aims, we look to forecast for your clients’ future needs in a process known as “cashflow modelling”, taking into account their:
- Tax obligations
- Income and outgoings.
Once all your clients’ essential information has been recorded, we are able to use software to project income requirements, future outgoings, the value of future assets, and the growth needed to reach them.
Cashflow modelling allows us to create a carefully tailored approach to your clients’ plans, built around their specific needs and circumstances, and can provide answers to big questions, such as:
- When can they afford to retire?
- How long are their savings likely to last?
- How would their financial situation be affected by unexpected events, such as a period of ill health or needing to care for a loved one?
- What kind of financial legacy can they leave their loved ones?
These answers are likely to inform any steps taken with your clients’ financial plans in the short term and can help shape projections for their futures.
3 helpful ways cashflow modelling can help protect your clients’ long-term plans
1. It can help your clients and their planner understand the level of growth needed to reach their long-term goals
According to the Evening Standard, more than 60% of working Brits face the prospect of not having enough for an adequate standard of living in retirement.
Cashflow modelling can help offset any potential financial issues and assist your clients in understanding exactly how much money they’ll need to accrue to reach their long-term goals.
This can involve accounting for:
- Their desired current lifestyle and likely outgoings
- Any future health requirements
- Retirement savings needed to deliver their desired level of comfort.
At Delaunay Wealth, we utilise financial tools to help convert these projections into reality, including pension schemes, stock market investments, and tax-efficient ISAs, among others.
Cashflow modelling helps turn your clients’ dreams and hopes into reality, by giving them cold, hard cash figures to work towards.
A Royal London study on the benefits of financial advice found that clients who received it had, on average, £47,000 more wealth than those who didn’t after a 10-year period.
Additionally, those who received it on an ongoing basis were up to 50% better off than those who had only received advice once.
Working with a financial planner and utilising cashflow modelling could be the difference between your clients’ falling short or reaching their long-term goals.
2. It can help highlight inefficiencies in your clients’ outgoings and guide them towards beneficial savings
One of the first steps in developing a successful cashflow model is to do the necessary due diligence and research, inputting as much detail as possible into the software about your clients’ current financial situation.
This may include:
- Current income
- Existing debts
- Investments or assets they hold
- Protection premiums
- Pension contributions
- Vital outgoings such as rent/mortgage payments or utility bills.
Once this information is gathered, your clients’ planner is able to review possible solutions to any inefficiencies within their existing budget.
This may involve reviewing the best possible deals for their savings accounts or debt arrangements such as their mortgages.
It might result in suggestions to move their funds into tax-efficient savings vehicles like ISAs or into increasing pension contributions, which may help them reduce their Income Tax obligations.
After streamlining your clients’ current monthly budgets, they are likely to be better positioned to work towards reaching their long-term goals.
3. It can prepare your clients for major milestones in life and any unexpected challenges along the way
Your clients’ lives are likely to be full of major milestones and they might end up sprung with an unexpected challenge or two.
Some major events that may require their financial input could be:
- Getting married, or supporting a child/grandchild with their wedding preparations
- Moving home or relocating abroad
- Providing for their children or grandchildren’s educational costs
- Caring for a loved one unexpectedly
- Retirement — when to take it, whether to delay, and any additional healthcare costs that may arise.
The future is never guaranteed, but through cashflow modelling your clients can leave themselves as prepared as possible to overcome any challenges and stay on track towards reaching their long-term goals.
Get in touch
If your clients are worried about their future and are pondering how they might be able to afford to pay for some of their major life goals, they may benefit from a cashflow modelling approach and receiving expert advice.
They should get in touch by emailing firstname.lastname@example.org or calling 0345 505 3500.
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.