It is a model that collates all your financial information (assets, liabilities, income and expenditure) and then combines this with your future plans such as retirement, property purchase/downsize, spending or gifting. This creates a scenario to enable you to look forward and see what your financial future looks like, or could look like, with some key changes.
In reality many people have some sort of plan, on a spreadsheet or paper based, and so they have some idea of the future. Critically, proper cashflow planning allows a robust analysis building in important assumptions such as the effect of inflation, asset growth, future events such as receipt of a pension or windfall to make this whole process as accurate and relevant as possible. This generates a multi-year plan that can be fine tuned and built upon.
What are the benefits of good cash flow planning?
- Provides visibility and confidence about your financial future
- Once in place you can create what-ifs to see what is possible. This could be planning for early retirement, extra spending or perhaps gifting to others and understanding the impact this would have on you
- Establishing the level of return you need from your pensions/investments to meet your goals. This in turn allows you to see if you are taking the right level of risk to achieve this
- Ability to stress-test your plans to see what effect a market downturn or unexpected expenditure such as ill health or care would have on you
- Helps you with formulating a tax planning strategy
At Blue Sky, we often tell clients that if you plan to invest, it is best to first invest in planning.
Having this knowledge and confidence allows you to see just what is possible and then inform you what you need to do or sometimes just reaffirm that what you are doing is right. Cash flow planning for us is quite separate from investment advice, because until you know what you need to achieve how can you hope to select the right investments?
We present the cash flow plan in an engaging and easy to understand format and then update this regularly to see if all is on track or model new scenarios as life changes.
Please have a look at the short video clip below which explains a little more of the benefits of cash flow planning.
Author: Andrew Dunn