SNAPSHOT2 min read

How cashflow planning prepares you for the future

Cashflow planning is a powerful tool used by financial planners. Learn more about how it could help you secure your finances now and in the future.

16/08/2023
AdobeStock_335829405_1

At the beginning of 2020, none of us could have predicted that a pandemic would sweep across the globe or Russia would go to war with Ukraine in the next few years.

Unfortunately, these unexpected events caused serious economic disruption, leading to high inflation and rising interest rates. You may well be feeling the effects of this on your financial plan.

Indeed, Legal & General [1] report that 2.5 million people plan to delay their retirement due to the cost of living crisis. 64% of those people said it was because they could not afford the loss in income.

The cost of living crisis is just the latest in a long list of unpredictable changes that could affect your financial plan. Your own personal circumstances often change too, whether that is because of a new job, a growing family, or simply a change in your priorities.

As such, you may want to look ahead and consider how outside events or changes to your own lifestyle could affect your financial plan. Fortunately, cashflow planning is the perfect tool to help you do this. Read on to find out why.

Cashflow planning maps out your financial future

Cashflow planning allows a financial planner to create a model of your current and future finances, so you can make decisions about your financial plan.

They will start by collecting key information about your financial situation. This includes:

• Your household earnings

• Assets including pensions, savings, investments, and property

• Liabilities including your mortgage and any unsecured debts

• Details of other long-term financial commitments.

They then feed this information into a piece of software that crunches the numbers, accounting for factors such as inflation and potential investment performance, to forecast how your situation may change over the years.

All the information and predictions give you a visual chart that breaks everything down in a clear way. Being able to see everything in this visual format gives you and your financial planner a precise picture of your current situation and how your financial plan could unfold in the future.

It’s a very effective tool when used by a professional who can interpret the information and give you guidance on how to act on it.

Your in-depth cashflow plan could inform you in many areas including:

• How long it will take you to reach your retirement savings goals

• What kind of lifestyle you can afford in retirement

• How the value of assets could potentially grow over time

• How unexpected costs could affect your financial plan

• Whether you can afford to gift money to your family

• How much Inheritance Tax (IHT) your family may have to pay on your estate.

When you take advantage of these insights, you can make more informed decisions about your wealth.

Here are three ways that cashflow planning prepares you for the future.

1. Plan ahead with confidence

According to This is Money [2], almost half of retirees are worried about running out of money in retirement.

This may be because they miscalculated how much they would need to save to fund their desired lifestyle. Additionally, many people underestimate their own life expectancy, and so they do not put enough money aside to sustain them for the rest of their life.

Cashflow planning can help you avoid issues like this by giving you a precise understanding of how much income you need to achieve your desired lifestyle and goals in retirement.

You can then use these forecasts to set savings goals for your retirement and plan based on information, rather than vague assumptions.

Additionally, you can update your cashflow model whenever you consider making changes to your financial plan. If you want to change your investment strategy, for example, you can map out what the long-term effects of that could be.

As such, you can make informed decisions and take some of the guesswork out of financial planning, so you can plan ahead with confidence.

2. Rehearse “what if?” scenarios and plan for the unexpected

As you go through life, your priorities often change and you may want to tweak your financial plan so it aligns with your new lifestyle.

For example, you may want to:

• Travel more often

• Make renovations to your home

• Gift money to children to help them buy property or get married.

Cashflow planning allows you to rehearse these scenarios and see how they could affect your financial plan later in life.

Equally, you can use forecasts to help you prepare for unexpected events in the future. Many things can disrupt your financial plan including serious illness, job loss, or market fluctuations, for example.

Cashflow planning can show what the effects of these things may be, so you can prepare for them ahead of time.

Planning for the cost of long-term care is a prime example of this. Cashflow planning could help you account for this expense, so you can live your desired lifestyle in retirement and be confident that you would be able to pay for care should you need it.

3. Create a dynamic financial plan

Regularly monitoring your financial plan is an effective way to ensure that you are on track to meet your goals. Additionally, if you aren’t, you may be able to make changes to rectify that.

Your cashflow plan can show you whether you are contributing enough to your pension to meet your retirement savings goals, for example. If you aren’t, you can increase contributions accordingly.

You can also see whether you need to change your plan to mitigate the effects of certain outside factors. You might be concerned about high inflation and how it could affect the value of your cash savings right now, for instance.

In this situation, you could use cashflow planning to see the potential effects of moving wealth from cash savings and investing it instead.

Cashflow planning gives you the information you need to constantly update your plan and make it dynamic, so you are always working towards your goals in the most efficient way possible.

Get in touch

If you would like to explore the benefits of cashflow planning and gain more insight into your financial future, we can help.

Please visit our contact page or speak to your adviser.

Please note

The Financial Conduct Authority does not regulate cashflow planning.

[1] 03.08.2023 2.5 million plan to delay retirement due to cost of living crisis Legal & General

[2] 03.08.2023 Almost half of retirees worry they will run out of money in later life This is Money

Important information

The views and opinions contained herein are those of Benchmark Financial Planning. They do not necessarily represent views expressed or reflected in other Benchmark Financial Planning communications, strategies or funds and are subject to change. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable, but Benchmark Financial Planning does not warrant its completeness or accuracy. The data has been sourced by Benchmark Financial Planning and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. Benchmark Financial Planning is not responsible for the accuracy of the information contained within linked sites. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past Performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Issued by Benchmark Financial Planning Limited. An Appointed Representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, RH12 4QP. Registered in England and Wales No 07572431.

Topics

Benchmark Financial Planning is an Appointed Representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority, the registration number is 223112. Registered office: Broadlands Business Campus, Langhurst Wood Road, Horsham, West Sussex, RH12 4QP. Registered in England and Wales No 07572431.

The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service, please visit www.financial-ombudsman.org.uk

The guidance and/or advice contained within this website are subject to the UK regulatory regime and are therefore targeted at consumers based in the UK.