One thing the Covid pandemic has taught us is that we never really know what tomorrow holds. While predicting the future may be impossible, financial planning makes sense as it provides peace of mind that whatever happens, your client is likely to be financially secure and best placed to meet their goals.
One way this can be done is by using sophisticated cashflow modelling software that could provide your client with a detailed snapshot of how their financial future could look. This provides them with a better understanding of how their decisions could affect their wealth, and whether they are still on track to meet their long-term goals.
This is why a good financial strategy should typically have cashflow modelling at its heart, to ensure that any strategy is based on carefully constructed models and calculations and not a “hunch”. So, against this backdrop, read on to learn more about how cashflow modelling works, and three important ways it could help your client plan for a better future.
Cashflow modelling is a roadmap for your client’s financial journey
All cashflow models are based on a detailed picture of your clients’ assets, investments, income and expenditure. This is entered into the cashflow software, and then different growth rates, levels of income, inflation and interest rates can be used to determine various “what if” scenarios.
As rates of various scenarios can be altered to reflect your client’s circumstances and attitude to risk, it gives a bespoke projection of how their wealth could change over time. This provides them with the confidence they need to make decisions that are likely to benefit them and avoid decisions they could later regret.
As you can see, cashflow modelling can be an extremely useful tool, so let’s now look at three times it could help your clients.
1. Confirm whether your client’s retirement strategy is on track
Cashflow modelling allows your client to see whether they’re on track to achieve their goals, which can be particularly important if they are planning their retirement strategy. For example, it could help your client understand whether or not they can retire at their target age and afford to enjoy the standard of living they want.
If the cashflow software reveals that your client’s pension is not on track to achieve their aims, the cashflow model can help provide options. This could include boosting their pension contributions or identifying areas of spending that could be reduced so that they can retire earlier.
As cashflow modelling can factor in changing contribution levels, it can help your client understand exactly how much more they may need to contribute to meet their target.
2. Help your client deal with life changes or unexpected events
Whether your client is planning for retirement or dealing with a change in circumstances, cashflow modelling can help provide a clearer understanding of their options. As the software allows them to factor in any potential changes, whether these are positive or negative, your client can create a contingency plan to ensure financial security.
If they’re thinking of changing their career, for example, cashflow modelling could help them understand the long-term effects it could have on their wealth. This could help provide a clear understanding of whether making the move could jeopardise their future aspirations.
As the model can include a breakdown of your current situation, it can also help your client identify areas where savings could be made and project the potential benefits of doing so. This might reveal, for example, that your client can afford to maintain a lifestyle on a lower income, whether that’s on a temporary or permanent basis.
3. Allow your client to understand whether gifting is right for them
If you have clients who would like to help younger members of their family, they might be considering gifting them money. If so, research by pension specialist Just Group may make for interesting reading, as it suggests that 60% of parents failed to consider potential care costs when gifting cash to adult children.
If so, research by pension specialist Just Group may make for interesting reading, as it suggests that 60% of parents failed to consider potential care costs when gifting cash to adult children.
Get in touch
At Ardent, we believe cashflow modelling is central to good financial planning. This is why we use it to ensure those we work with fully understand the potential consequences of financial decisions they make, and the options that are available to them.
If you or your client would like to discuss how cashflow modelling might be able to help them make sound decisions around their money, please get in touch. We can be contacted on email@example.com or by calling 01904 655 330.
As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that your clients will receive excellent advice and high-quality service.
This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate cashflow planning.