In simple terms, a cashflow model is a projection of income and expenditure alongside your present and anticipated asset base. The modelling exercise is personalised you and should incorporate events that are likely to happen, as well as those that might be aspirational.
As with any projection, there will be assumptions made in the modelling. Economic factors like the potential effects of inflation and interest rates in the future need to be built in, as well as the continuation of present tax policy; additionally, the potential returns from investments need to be considered, which will of course be dependent on attitude to risk.
The construction of the model will enable your adviser to present a visual representation of your finances throughout time. Using scenario analysis, this can inform decisions such as:
- Will I be able to retire as planned, or possibly earlier than planned?
- Do I need to take as much investment risk to meet my objectives?
- Can I afford to make a contribution towards the purchase of a property for a child or grandchild, or perhaps a contribution to their Further Education?
- Can I afford to pass on assets to my family whilst still being able to fund my own way, possibly including paying for private Care?
- Given my objectives, what is a realistic level that I need to achieve when realising my business assets?
Cashflow modelling can also be used to inform matters involving litigation and Courts, for example, decisions relating to the separation of assets on divorce or to ensure continued medical care can be funded.
Frequently our advisers will use cashflow modelling to form the basis of their advice and as a method of reviewing the progression of your financial plan.
