Illustration of woman putting building blocks in place

Illustration of woman putting building blocks in placeEver wish you had a crystal ball and could see what life would be like in five, ten or even 20 years’ time?  A method of looking in to the future that financial advisers use is lifetime cashflow modelling.

While it can’t tell you next week’s lottery numbers or who’s going to win the next World Cup, it can give you a window into your financial situation in the years ahead, and enable you to plot out a range of potential financial actions or scenarios and their implications for your financial future.

Using lifetime cashflow modelling, we are able to answer important questions for our clients, such as when they’ll be able to retire or the rate of investment return they are seeking from their portfolio to fulfil their ambitions and meet their financial targets.

How does it work?

Cashflow modelling is a powerful and valuable tool that allows us to help clients plan financially for all life’s challenges and opportunities. It works by following a series of steps.

Discovery and goal setting – We review your current financial situation by gathering as much information as we can about your circumstances. The more detail we can collect about you, the more accurate your lifetime cashflow model will be.

We then establish what you want to achieve and what life goals you have for you and your family. This could include common aspirations such as travelling the world in retirement, investing in a holiday home or helping your children or grandchildren with a deposit on their first house.

Or they can be more complex, personal goals particular to your own individual situation. Whatever is important to you needs to go into your plan.

Assessing risk – The assessment of your risk tolerance is an important part of the process. Risk and return go hand-in-hand, so we establish the amount of investment risk that you are comfortable with and how much risk you need to take in order to achieve the return you are seeking.

We use an emotional risk assessment tool to calculate this, with the level of risk people think they are comfortable with and the level they are actually comfortable often turning out to be two quite different things!

A thorough plan – Once we have gathered all the information we need, we create your lifetime cashflow plan. Just like you, it is a living and breathing plan, allow us to factor in lifestyle changes as they develop, as well as the effects of inflation and the growth of your investments.

Scenario planning – This is where we focus on the ‘what ifs’ and build alternative solutions and options into the projection for those occasions when events might not turn out quite as you expect.

As we have all learnt from the past year, life can be unpredictable and lifetime cashflow planning can help take account of this. It can include things such as being made redundant or becoming critically ill, so our clients can prepare themselves better for such eventualities. We can also help model more positive options, allowing you to understand the financial viability of, for example, moving to part-time employment or taking early retirement.

Regular reviewing – Once your plan is up and running, we would encourage you to review it regularly, to ensure it remains on track and in step with your life. There will always be changes in circumstances, alterations in taxation, lifestyle changes and differing levels of investment returns, so regular reviews of the plan help ensure it remains on track for success over the long term.

In summary, it’s relatively easy to plan for what we know is going to happen in life but planning for the unexpected is much more challenging. Lifetime cashflow modelling helps to develop an organic and responsive financial plan with the flexibility and foresight to deliver what you’re seeking for you and your family, both today and tomorrow and as such provides priceless and peace of mind.

If you would like some help in organising your finances and investments and building your financial plan, please get in touch.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Author Joshua Castle

Chartered Financial Planner

Josh joined Progeny in June 2017 as a Paraplanner.

Learn more about Joshua Castle

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