A client once remarked that it would be good if we had a crystal ball for their finances. A good point well made, so we went and bought one from Amazon, which still sits on a windowsill in the office. It looks good but has never proved to be entirely reliable.
Cashflow forecasting, on the other hand, is a much more accurate way of planning for the future. It is the visual representation of where you are today, and also where you are likely to be in the future, given a set of varying factors. Pulling together actual figures for spending, projected expenditure, portfolio performance, and other factors enables us to develop the strategies with you to help you reach your financial goals and objectives.
It also allows a deeper dive into what you see as both essential and discretionary expenditure and the timing of inflows and outflows of income and capital.
One of the main areas that benefits from cashflow planning is retirement planning. The first figure we calculate with clients considering retirement is what we call ‘The Number’ – the amount of money you need to have accrued to fund your desired lifestyle for as long as you live.
The Number is the level at which your retirement goals can become a reality, providing the right level of income and capital for you to be able to enjoy your retirement in comfort. As around six in 10 people finish work before their State Pension age these days, they will often experience a shortfall of guaranteed income at the start of their retirement until the State Pension kicks in.
Many people have an age in mind when retiring rather than a number, but having this focus can often lead to either working longer than needed or retiring too soon, with the impact of this decision potentially huge on the longevity of any financial plans you have in place. Most early retirees also have larger expenditures planned in the early years and an inability to top up pension provisions once retired, so accurate planning is essential.
It can be difficult to understand quite how your retirement provisions will change over time given investment growth and other external factors. Cashflow modelling gives us a clearer insight into how these can affect the money you have to live on, allowing What If? Scenarios to be run through, to show you what would happen under various economic conditions, and even to adjust for factors such as longevity.
So, whilst cashflow forecasting might not seem as exciting as a crystal ball, it is a much more accurate and visual representation of what is going to happen with you.
At Foresight, we have invested in cutting-edge technology to bring your finances to life. This, coupled with expert goal development and knowledgeable Wealth Strategists who know how to get the most out of your money, gives you the best chance of living your ideal financial life.
If you, or anyone you know, would benefit from a detailed run though of their current financial planning and long-term financial goals, please get in touch with the Foresight team and one of our Wealth Strategists will be pleased to speak with you.