Cashflow modelling and visualising your future

By castlegateadmin | Wealth Management | No Comments

This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.

What if you could “visualise” your financial future on a graph? Where could life take you if you invested £300 each month into your pension compared to £200 per month? What could happen to your earnings (and tax liability) if you pursued a different career path? With cashflow modelling, this kind of visualisation starts to become possible, enabling you to make better decisions about your money based on realistic possible outcomes.

Of course, we need to state the obvious—no financial adviser can predict the future. However, you can make educated guesses about how your wealth might grow based on various inputs and data—e.g., the potential size of your future retirement fund in “medium,” “worst-case,” and “best-case” scenarios.

Below, our Grantham financial advisers explain how our cashflow modelling service works, how it benefits our clients and how it can fit into a wider financial plan. We hope this is useful, and we invite you to please get in touch if you want to explore this further in your own case via a no-obligation financial consultation (at our expense):

01476 855 585
info@casfin.co.uk

Building a detailed picture

If you could have a clear view of what your future lifestyle could look like, you might be more motivated to act now to secure (or improve!) it. What if a little more effort – e.g. higher pension contributions – could dramatically improve your future comfort in retirement? Maybe the mortgage could be paid off more quickly than previously thought.

With cashflow modelling, you can start to get a realistic idea of what is possible. It is great to know what your assets, investments, debts, income and expenditure are now. Yet, what form might they make in 20, 30 or more years? Which financial decisions across your lifetime could affect the size and balance of these areas?

Cashflow modelling helps you take that deeper step into understanding your financial goals. For instance, perhaps you have a vague goal of achieving more financial independence. However, what does that “look like”? What does it mean to you, and which actions would be required to turn it into a reality?

The power of technology

Financial advisers in 2024 are arguably more empowered than ever before to engage in cashflow modelling. Computing power, software and other technological advancements have empowered professionals to go far beyond previous methods of relying on pen, paper and spreadsheets (although these are still useful!).

Here at Castlegate, our digital cashflow modelling allows clients to quickly and easily see how their future finances could be affected even by a small change in a variable (e.g. boosting pension contributions by £50 per month).

Everything is beautifully visualised in readable, clear graphs which quickly update wealth growth projections as different inputs are entered into the software. You can see how compound interest could boost your investment returns, especially in the later years (e.g. decades three and four) when growth prospects can skyrocket.

Accounting for the market

Of course, how can you predict someone’s wealth growth potential when markets (such as equities) are volatile? Here, financial advisers can adopt two main approaches. The first is called deterministic modelling, which involves “stress testing” the results of a cashflow model using imagined future stock market crashes, falls or corrections.

The second approach is to use a stochastic modeller. Here, the volatility of a client’s chosen portfolio is already “built into” the results of the cashflow model. This approach typically represents the visual data in a “range”, showing different conceivable outcomes based on varying inputs (e.g. different performances in the markets).

Other approaches exist too, such as fund-based modelling and risk-based modelling. Results can also be shown in both nominal and “real” values (i.e. accounting for inflation). All assumptions are evidenced and regularly reviewed. Cashflow modelling is not a hard science, with results subject to change, and it is best taken as a guide to the future but not as a guarantee. Nevertheless, it can be a very helpful guide to visualizing future cashflows.

How to build a plan

Data is key to cashflow modelling. For it to work, clients need to supply their financial adviser with accurate information about income, expenditures, assets and liabilities. Any potential changes (e.g. possible pay rises or increases to costs, such as the mortgage) also need to be accounted for. Debts, savings and investments need to be captured within the data, too.

With a clear picture of your “starting position”, our Grantham financial advisers can discuss your goals more productively. Future expenses can be more accurately categorised into “essential” and “aspirational”. Different pathways towards retirement can be plotted. Surplus money can be identified and put to good use. Cashflow issues can be spotted ahead of time and addressed more prudently than if left alone.

Invitation

If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 855 585
info@casfin.co.uk