What is Cash Flow Modelling in Financial Planning?

‍What is Cash Flow Modelling?‍

Cash flow modelling is an essential tool for financial planning, helping Private Wealth Managers guide clients through the complexities of achieving long-term financial goals. By creating a detailed cash flow projection, we can identify potential cash shortfalls, determine how much savings you need, and evaluate the impact of different financial decisions.

Through a comprehensive data analysis, we provide a clear picture of how your wealth will grow and evolve over time. This analysis considers your current income, expenditures, debts, investments, and assets, as well as external factors such as inflation, market growth, and interest rates. The result is a full-picture projection of your finances, enabling you to plan with confidence.

Our process doesn’t stop at an initial assessment—your Lifetime Cashflow Model is reviewed annually to monitor your progress towards your financial and retirement goals. We continually assess your circumstances, making adjustments where necessary to ensure your plan remains on track. With this dynamic model, you can test various “what-if” scenarios in a risk-free environment, helping you seize opportunities and adapt to changing conditions.

How does the Cash Flow Modelling Process work?

The process begins with a detailed consultation to gather relevant information about your assets, income, expenses, and future goals. This step is crucial to building a comprehensive profile that reflects your unique circumstances, financial priorities, and attitude to risk.

The profile is based on a number of factors, including:

• Current annual income and expenditure
• Assets and investments
• Liabilities, including loans and mortgages
• Income protection and life cover
• Desired retirement age, lifestyle and income
• Expected future windfall and expenditure 

Your profile will help us make informed assumptions about your financial standing and other external factors such as projected market growth and inflation rates.  

Once this profile is complete, we input the data into a market-leading cash flow modelling software to create a visual chart of your lifetime cashflow. As your circumstances change, this cash flow model will be reviewed regularly so that you always have the most up-to-date version.

Cash flow modelling is not static; it evolves with you. As your circumstances change—whether it's a career shift, family changes, or a change in your risk tolerance—we regularly update your model. This helps us identify new gaps in your planning or areas where you could optimise your strategy.

For example, if you’re planning to retire at age 60 with an annual income of £50,000, we can project how long your savings will last, factoring in factors like inflation, life expectancy, and market growth. In one example from our webinar on "Securing your Retirement", we demonstrated that if no adjustments were made, a pension could run out by age 82, leaving you financially unprepared. This scenario highlights the importance of adjusting withdrawal strategies and regularly reviewing your model to ensure you don’t outlive your savings.

Click here to request a summary and presentation slides from the webinar.

What are the Benefits of Cash Flow Modelling?

There is no greater peace of mind than to be able to have a clear view of your financial future.  

Understanding if your present income and expenses are sustainable can give you the confidence to make life-changing financial choices. Most importantly, it can help you identify any current shortcomings so that you can prepare for the unexpected.  

With the help of a secure testing environment, we can help you model different scenarios and assess their impact on your assets.

For example, if you wanted to buy property, take a sabbatical or retire early, we can test these scenarios against your Lifetime Cashflow Model to determine if they are achievable or help you come up with a savings and investment plan that will bring you closer to your goal.

In summary, cash flow modelling enables you to:

• Save and invest more effectively
• Make informed financial decisions
• Protect your assets
• Plan for your retirement 
• Prepare for unexpected scenarios
• Explore and enjoy opportunities 
• Minimise risk and liabilities
• Realise your full financial potential 
• Make the most of your wealth

Adil Rafiq, our Private Wealth Manager at Melbourne Capital Group, offers his expertise to individuals of varying ages and backgrounds to help structure and establish financial plans. Please don’t hesitate to contact him at adilrafiq@melbournecapitalgroup.com or fill in the form below.

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