What is cashflow modelling?

A cashflow model is a graphic representation of all your assets, investments, debts, income and expenditure, projected forward, year-on-year. With the help of carefully calculated assumed rates of growth, interest, inflation and wage rises, we can show you a range of potential outcomes.

The benefits of cashflow modelling

There are many benefits to looking at your finances in this way. Cashflow modelling can help you understand and better organise your finances, manage your tax liabilities, and show you the potential impacts of big financial and lifestyle decisions.

It can help you answer questions such as

• If, and when, can you comfortably afford to retire?

• How much can you afford to spend now whilst planning for your desired lifestyle later in life?

• Is it feasible for you to gift part of your wealth without it affecting your ability to maintain your lifestyle?

• How much you need to save or invest whilst working towards financial independence?

• What is the potential impact of downsizing, taking on a part-time job in retirement, or needing long-term care?

• What is the potential financial impact of early death or illness for you and/or your partner?

Analysing your cashflow like this helps you to gain clarity and empowers you to make sound decisions with confidence.

An example of what a cashflow looks like:

1. The gold bars represent a client’s income, which could be made up of income from employment and withdrawals from assets and investments such as Pension, ISAs, GIAs, Investment Bonds, Cash holdings etc.

2. The black line is the client’s anticipated expenditure and, in this example, includes living expenses, a purchase of a new car at age 60, 70 and 80. Gifting money to their children from age 70 onwards. At age 80, personal care costs have also been factored in.

3. When the black line meets the gold bars, it is displaying that the client’s income and/or withdrawals from assets/investments can be used to meet their expenses.

4. The shaded background represents the client’s realisable assets which are being used for the purpose of the cashflow modelling and the effect on these assets by meeting their capital expenditure.

You will see from the chart that from the age of 70 the client’s net assets are starting to reduce as they are withdrawing from their assets to meet their increased expenses (which is due to making gifts and anticipated personal health care costs on top of their general living expenses).

Throughout the cashflow model the client’s income continues to meet their expenditure which demonstrates that they could maintain their desired lifestyle without the fear of running out of money and will still have assets remaining once they reach 100 years of age.

The example includes assumed rates of growth, interest and inflation.

Any cashflow model is bespoke and built to reflect your specific individual circumstances and situation.

The value of your investment, and any income derived from it, can go down as well as up and you may not get back the full amount you invested.

Please note, The Financial Conduct Authority does not regulate advice on lifetime cashflow modelling services.