News

The Use of Cashflow Modelling

  • Published on 25 June 2019
  • News

One of the many services which forms our wealth management offering is cashflow modelling, which can form an important part of a client’s financial planning process.

Cashflow modelling is a great way to visualise your financial situation, assess your ability to meet your objectives, and compare the long term effects of making particular planning decisions.

What Is Cashflow Modelling?

A cashflow model works by summarising your current financial situation, looking at your income sources, your outgoings, the structure and physical make up of your assets, and any liabilities you may have.

We then use a series of assumptions regarding the expected investment returns, inflation, and costs, and extrapolate the data to determine the likelihood of achieving your financial objectives.

With this base model created we can then test it by modelling different scenarios, either by changing some of the assumptions (such as increasing inflation, or lowering investment returns), or by altering the objectives, such as retiring at a younger age, or saving more on a regular basis.

This has the effect of determining whether your current financial objectives are realistic, or whether adjustments would need to be made either to your objectives, financial arrangements, or both, in order to reach your desired goals.

When Can Cashflow Modelling Help?

While cashflow modelling can be used for a general overview of your finances, it can be particularly useful to determine the likelihood of meeting specific financial goals. This may include:

  •  When can I retire?
  •  How much can I afford in retirement?
  •  What would the effect of paying education costs have on my finances?
  •  What would the effect of making large gifts out of my estate have?
  •  How far are my current arrangements able to be ‘stress tested’ in cases such as sickness or unemployment, or if the stockmarkets were to fall.

Based upon the outcome of these plans we will often provide financial planning recommendations to further increase the chances of reaching your goals. The plan can then be re-visited at regular intervals to ensure that you remain on track.

If this is an area of financial planning you are interested in, please speak to one of our Wealth Managers who will be happy to talk you through this process in further detail.

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