If we’ve learned anything in the past couple of years, it’s that life is unpredictable. But being able to visualise your future financial situation can help prepare you for anything life might throw in your path.
Cashflow planning is a tool our financial planners use to help you understand your current and future finances. It’s a really useful way to determine if you are on track to achieve your financial goals and gives you a visual illustration of what you can expect.
Cashflow planning helps you plan your financial future
Cashflow planning helps you figure out how you can achieve different financial goals, helping to answer questions like:
- Will I have enough money to retire when I want to?
- Can I afford to help my children with a deposit to buy a property?
- Am I going to run out of money in later life?
- Will my family be financially secure if I go into care or die unexpectedly?
- Will my family have to pay Inheritance Tax on my estate?
To start answering your burning questions, you first need to feed in all your relevant financial information.
Data we’ll need to input includes your:
- Earnings, plus those of your spouse or partner (if applicable)
- Assets, including your savings, pensions, investments, and property
- Liabilities, such as mortgages and any unsecured borrowing
- Details of any long-term financial commitments.
Once this data is entered, the software layers in financial variables such as investment performance, inflation, and your projected future earnings.
Next, it’s time to crunch the numbers to create a long-term projection of your finances. This will show your future requirements alongside any increase or decrease in your assets. It will also highlight any potential surplus or shortfall.
With all the information available, you can see a complete overview of your current financial situation and how this might look in the years ahead. It’s also possible to change the information provided and illustrate how different future scenarios might affect your finances.
For example, you can change the date of your retirement, alter the expected return on your investments, or simulate a fall in the market. You can also see how taking income from different sources could affect your overall finances – and your tax situation – over time.
Access to this level of detailed information will help you make informed financial decisions with confidence, rather than guessing everything will be fine and making false assumptions.
Here are six ways cashflow planning can help you plan your financial future with confidence.
1. Helps you plan ahead
Cashflow planning provides a clear projection of your future wealth, based on your specified information. This gives you a solid starting point to be able to model scenarios around your plans and aspirations.
As well as looking at the positive possibilities, you can see what might happen if things don’t go according to plan.
2. Helps you make informed financial decisions
Decisions derived from research and factual evidence often lead to better outcomes than ones based on a gut feeling.
Of course, no one can accurately predict the future, but cashflow planning can help you prepare for the financial effects of big life events – whether they be positive or negative.
If you’re in a comfortable position, the software will show you. Alternatively, if you’re not on course to meet your financial goals, it will highlight the problem so that you can adjust and make changes.
For example, if you’re spending too much, or aren’t saving enough, you’ll be able to spot this as an issue and adjust your plans.
Similarly, you’ll be warned if you’re saving too much into your pension. While this may not sound like a problem, overpaying into your pension could result in you exceeding the Lifetime Allowance, which would land you with an unwelcome tax charge. Cashflow planning will highlight this possibility, thus allowing you to take steps to avoid the issue.
3. Helps you address multiple “what ifs”
At some stage, you’ve probably wondered how a certain event or something you’ve thought about doing will affect your finances.
Cashflow planning can illustrate the impact of life decisions on your financial situation. So, if you wanted to retire early, you can see what this means for your overall financial situation and make a decision from a position of strength, rather than just going ahead and hoping everything will turn out okay.
4. Makes it easier to plan for the unexpected
One of the useful ways you can benefit from cashflow planning is to see the possible impact of unexpected events on your finances.
For example:
- What if I passed away suddenly? Would my partner be financially secure?
- What if I or my partner need long-term care when we get older?
Being able to see ahead to how these things might affect your financial plans gives you time to take steps to correct any shortfalls or put suitable protection in place to help you and your family cope should the worst happen.
5. Gives you a straightforward overview of your financial position
One often overlooked benefit of cashflow planning is the way it can be used to organise your financial data and present it in a way that is easy to understand.
The visual representation of how your financial future might look can be a simple way to get a measure of where you’re at now and where you could be in the future.
Most cashflow tools use charts and graphs to set out information and projections clearly. This means you can see and understand your situation in a glance, without having to pore over rows of figures and data to work things out.
6. Provides continuous support to help you stay on track
You should revisit your financial plan every year to make sure you’re on course to achieve your financial objectives.
When you sit down with your financial planner, cashflow planning can be used to make sure everything is going to plan. This way, should you find that something is amiss, you can make any necessary adjustments and, hopefully, work to avoid potential future problems.
Get in touch
We work to turn complexity into simplicity. One of the main ways we achieve this is through using technology like cashflow planning tools, which help make the planning process much easier.
To find out more about how we can help you plan for a financially secure future, get in touch. Email contactme@kbafinancial.com or call us on 01942 889 883.
