We all know how important it is to prepare business plans and cash flow forecasts for our business, they are key financial tools when aiming to keep the business on track by planning how to get from where we are to where we want to be.
However, not many of us use the same principle for our personal financial planning, where a personal cash flow model can prove invaluable in assessing our current position compared to where we are aiming to get.
Personal Cash flow modelling is a tool used by Financial Planners to help clients understand their current financial position and their future financial position by devising a graphical, financial forecast.
In short, it shows a client whether they may run out of money in the future, whether they may have ‘too much’ money, when they may be able to retire or if they can afford to treat themselves to a luxurious holiday/other big expenditure.
It is important to take time out to look at future plans, assess goals/objectives and determine an action plan on how to achieve these – the personal cash flow model brings this together in a very neat way, for you to see in an instant exactly what is needed to get there and if there are any ‘holes in the plan’!
So, how does it work?
The actual forecast is created by a financial planner. The key to generating the most effective plan, is getting answers to the important questions by focusing on key goals, objectives and aspirations.
For example, some of the questions we would cover include:
- Current personal balance sheet – in terms of assets and liabilities?
- Current level of income and expenditure?
- Any foreseeable changes in income and outgoings over the next few years?
- Any possible inheritances?
- Any plans to stay in the current home / upscale or downsize?
- Any significant one-off outgoings expected in the next few years?
- Family weddings?
- That round the world cruise or other dream holiday?
- Target retirement age?
- Current and projected pension pots?
- Any potential business sale in the future?
- Projected income and expenditure requirements in retirement?
All of the answers to the above can then be built into the model to produce a graphical representation of what the projected cash flows look like.
The plan is then reviewed regularly, the model amended accordingly to take account of any change in circumstances, plans or objectives to keep everything on track.
If a personal cash flow forecast would be of interest to you, either give us a call on 020 8551 7200 or email us on email@example.com and we will arrange a meeting for you with our financial planners.