It’s impossible to accurately predict what’s going to happen in the future.
For example, back at the end of 2019, no one could have foreseen the turmoil and upheaval that the Covid pandemic would cause, nor that we’d still be feeling the financial effects nearly two years later.
This can make planning ahead difficult, especially for key events such as your retirement.
However, by using a financial modelling process known as “cashflow forecasting” it’s possible to greatly improve your chances of enjoying the financial future you deserve.
It means that the decisions you take will be informed by sophisticated modelling based on your own financial circumstances and on robust projections of what could happen in the coming years.
Cashflow forecasting helps you to plan your future
Cashflow forecasting uses advanced financial technology to help you plan your future.
The first step is to input all your relevant financial data. This will include your:
- Earnings, plus those of your spouse or partner (if applicable)
- Assets, including pensions, investments, and property
- Liabilities, such as mortgages and unsecured borrowing
- Details of any long-term financial commitments.
It then overlays financial variables such as investment performance, inflation, and your projected future earnings to give you an overview of your current financial situation and how this might look in the years ahead.
This information will help you make informed financial decisions, rather than those made on false assumptions and guesswork.
Here are six ways cashflow forecasting can help you plan your financial future.
1. Helps you project ahead
One of the key outputs of a cashflow modelling tool is a clear projection of your future wealth, based on the information that’s input. This will provide you with a good starting point to begin to model scenarios based on your plans and aspirations.
Certain variables can then be changed to highlight the impact of what would happen if things don’t quite go according to plan.
2. Informs your financial decision-making process
Decisions that are derived from research and factual evidence will often lead to better outcomes than ones based on a hunch or instinct.
We’ve already said that no one can accurately predict the future, but cashflow modelling can help you plan for the monetary impact of big events – both positive and negative.
If you’re in a comfortable position, it’ll tell you. At the same time, it will raise red flags if you aren’t on track to meet your intended outcomes or you need to make changes. So, if you’re spending too much, or aren’t saving enough, you’ll be able to adjust your plans.
Likewise, you’ll be forewarned if you’re saving too much into your pension. This could result in you exceeding the Lifetime Allowance and facing an unwelcome tax charge. Cashflow forecasting will highlight this possibility and you can take steps to avoid that outcome.
3. Helps you address your own “what if?” scenarios
It’s likely that, at some stage, you’ve wondered how a certain event or something you’ve thought about doing will affect your finances. For example:
- What if I was to stop working in the next couple of years?
- Can I afford to give my children the deposit to buy a property?
- What if resigned from my job and set up a business on my own?
Often with these questions, there’s something you want to do, or at least think about, but you’re hesitant to do so because you’re worried about the long-term impact.
Cashflow planning can help provide a representation of the impact such a decision would have. You’ll then be making your decisions from a position of strength, rather than just going ahead and hoping everything turns out OK.
4. Makes it easier to plan for unexpected events
As we’ve already established, no one can accurately predict the future. However, what cashflow forecasting can do is to help you see what the impact of unexpected events can have on your finances.
- What if there’s another pandemic, and markets fall as they did in March 2020?
- What if I passed away suddenly? Would my partner be financially secure?
- What if either myself or my partner need long-term care when we get older?
Cashflow forecasting can help you understand how these types of events could affect your financial plans.
For example, if a second pandemic caused another worldwide market crash, you’ll be able to see how robust your investment strategy is, and whether it needs adjusting to withstand such a fall.
You’ll then have the chance to take steps to correct any potential shortfalls, or the comfort of knowing that you already have the measures in place to cope should something cataclysmic occur.
5. Gives you a straightforward overview of your financial position
One often overlooked benefit of cashflow forecasting is how it can organise your financial data in an easy-to-understand manner and to demonstrate how your financial future might look.
Sometimes rows of figures on a page can be confusing. So, most modelling tools use charts and graphs that set out information and projections clearly so you’ll be able to understand your current position, and what it might look like further down the road.
6. Supports your review process so you can stay on track
Planning your financial future is more than a one-off event.
You should really sit down with your financial planner at least annually to go through your financial position – and probably more frequently if you’re approaching retirement or a key financial event.
At each review, cashflow forecasts based on up-to-date information can help you check your plans are still on track. They can also raise warning flags if you need to make adjustments to achieve your goals.
It’s important that the information you’re providing for cashflow forecasting is as up to date as possible. Obviously, your financial personal circumstances will change, so it’s important these changes are reflected in your planning process.
Get in touch
We use an advanced cashflow planning system to help you ensure you’re on track to achieve your financial goals.
Get in touch to find out how we can help you.