Cashflow Modelling is for individuals, not just companies
Wednesday 27th July 2011
By introducing cashflow modelling, Buzzacott have applied an essential, predictive corporate tool to individual need at a time of high inflation and turbulent financial markets.
Modelling has been used for years by successful companies to help them understand their cashflow and how it will change over time. It provides a crucial insight into their future finances, and allows them to take advantage of opportunities and plan for risks.
The same principles apply to an individual’s finances. Over time, we experience similar patterns of cashflow; we receive income from various sources and use this money to meet our needs, whether spending on current requirements or saving for the future. However, everyone has different aspirations and objectives; financial planning should be about how best to achieve them.
The introduction of cashflow modelling as part of our strategic financial planning process is helping clients to quantify their needs and desires, and see how their finances may change over time. Our system graphically projects an individual or family’s wealth, income and liabilities over any time period, taking into account variables such as inflation, investment growth, risk, tax and charges.
In the process, any number of important questions can be answered, such as: Will I have enough income in retirement? Can I afford to retire early? What will be the impact of Inheritance Tax on my estate, and how can it be reduced? Or, what effect will the sale of my business have on my financial position, and how can I make best use of the proceeds?
To gauge its value you only have to consider that an individual in their 20s, investing in a pension for the first time, may have between 30 and 40 years before wanting to take an income from it. Over this time, the pension’s value and the benefit it provides is going to be impacted by a number of factors, some in their control such as how much to save each month, where to invest it and for how long, and some outside it, such as inflation and investment risk, growth and charges.
Cashflow modelling can demonstrate whether your objectives can be met. If not, it can show how a different plan will achieve what you want.
At Buzzacott, we recognise that every client is different and firmly believe that the financial planning process should be collaborative to be of maximum benefit. We also appreciate that cashflow modelling projections should be viewed as a guide only, because complete accuracy is simply not possible.
The longer the period modelled, the less accurate the guide; however, when combined with our robust advisory process and regular reviews, it produces a highly effective plan that can be developed and changed as required to achieve the desired goals.
Ben Waters