Planning for you and your family’s financial future is a deeply personal journey that will evolve with your unique timelines and significant life events. It involves crafting a strategy to meet both your immediate needs and future aspirations – whether that’s starting a family, buying a home, paying for that special wedding, or planning for your retirement.
These are the moments that define our lives and can’t be measured by money alone. But, as an investor, your milestones are invaluable, providing clear targets to strive for.
And one of the greatest joys of having a secure financial plan for you and your family is the peace of mind it brings, freeing your heart and mind from worry.
Getting on track with cashflow modelling
‘Am I saving enough?’ ‘How long will my pension last in retirement?’ ‘How much can I afford to contribute to my child’s wedding?’
These are really common questions that most of us have asked, or will ask ourselves, over the course of our lives. And they’re difficult questions to answer because there’s no one-size-fits-all solution. The answer will depend on your unique circumstances, including your current lifestyle, financial position, and future plans. Additionally, external factors like inflation and investment performance, which are beyond your control, will also play a role. And that’s where cashflow modelling comes into play.
By using cashflow modelling, a financial planner can provide you with a much clearer view of your financial future and help you find answers to those crucial questions.
What is cashflow modelling?
It’s a really useful tool that financial planners use to show how long your money is likely to last in retirement by analysing everything from your current income and expenses to assets and liabilities. But it’s more than that – it also factors in your personal goals and life events, whatever they may be – and can even help protect and bolster those goals. So, you can be sure you’re getting a personalised plan that’s tailored to you. Here’s how it works:
Your planner will provide you with a cashflow illustration that maps out your savings and investments, year by year – and it will be tailored specifically for you. Your planner will consider factors such as your current financial situation, savings and investment habits, spending patterns, target retirement date, and future aspirations. They will also account for projected inflation, investment performance, and your life expectancy. They’ll talk you through your illustration too so if you have any questions, they’ll be able to explain.
How does cashflow modelling help?
Cashflow modelling provides some of the best insight possible into the health of your future finances. It captures your full financial plan, so you can see a complete and detailed expenditure breakdown.
This can be so useful when it comes to understanding if your goals are achievable or if you need to make some changes to your plans or saving and investing habits. And importantly it helps answer the big questions around when you can afford to retire, how long your savings will last, how much you can afford to leave your loved ones and what would happen to your finances if you needed long-term care.
What if my plans change?
Cashflow modelling is particularly valuable when it comes to examining the effects of potential changes to your plans as it showcases how your money will be affected by each change.
Together with your adviser you can rehearse your future by evaluating or stress-testing how various scenarios might impact your financial situation.
These might include delaying or advancing your target retirement date, adjusting the number of holidays you plan to take in retirement, changing your investments, opting for income drawdown instead of an annuity, or gifting money to your children and grandchildren.
Ultimately, cash flow modelling provides peace of mind by offering a clear roadmap to achieve your financial goals. It reduces uncertainty, allowing you to make informed decisions that support and protect your future objectives, helping you navigate complexities and balance your generosity with financial stability.
Building your financial plan
Once you and your planner have established a clear picture of your finances and how you’d like your future to evolve, your planner can create a personalised financial plan that aligns with your goals. Those steps could include taking on more investment risk, maximising your annual tax breaks or making a series of tax-efficient gifts.
And remember cashflow modelling is there if you want or need to change your plans in the future. Your planner will work with you to ensure any changes are evaluated and reflected in your financial plan. So, you can be sure your goals are still achievable.
Think about getting advice
Careful planning is so important when it comes to looking after your wealth and ensuring that you and your loved ones get the maximum benefit from that wealth – both in your lifetime and beyond.
If you don’t already have a planner, getting professional financial advice can help get your affairs in order. While there’s generally a charge for advice services, this could pay for itself in the long run by way of improved returns on your money, tax savings and, importantly, peace of mind.
Find out how abrdn's financial planning services could help you make the most of your tax allowances.
The information in this article should not be regarded as financial advice. Please remember that the value of investments can go down as well as up and may be worth less than was paid in. Information is based on abrdn’s understanding in September 2024.
abrdn Financial Planning and Advice Ltd is registered in England (01447544) at 280 Bishopsgate, London EC2M 4AG and authorised and regulated by the Financial Conduct Authority.