How do I know if I have enough money?
This is by far and away the most common question our financial planning team gets asked by clients. It doesn't matter how much money someone has, they want to know the same thing. Have I got enough to do what I want to do or, put another way, am I going to run out?
Our financial planners, who work through the Tilney part of our business, use cashflow modelling to answer these questions. It works by reviewing your current finances and plans for later life to forecast how much money you could have in the future.
What is cashflow modelling used for?
Cashflow modelling is used to give you an indication of how your finances may look in the future, giving you a better idea of whether you are currently on track.
It can help you answer questions such as:
- Will I have enough money to stop working when I want to?
- Am I going to run out of money in later life?
- Will I be able to afford care home fees if I need to?
- Am I going to leave behind an Inheritance Tax bill?
- Can I afford to spend more now?
- Will my family be financially stable if I die unexpectedly?
How does it work?
The first step is always to collect as much information as possible about your current finances. How much income do you receive each month? What are your outgoings? How much money have you saved in pensions, ISAs and other accounts? We will also be able to factor in known changes to your future circumstances such as a new job or inheritance.
Using specialist computer software, your financial planner will enter this information along with your future goals and other possible life events. These could include your retirement, one-off expenses like holidays and gifts to children, or even your death.
The software then crunches the numbers to create a projection of your finances going into the future. This will show your future needs alongside any increase or decrease in your assets, helping to identify any surplus or shortfall you could potentially have.
Your financial planner can then run through other scenarios to see how they could affect your finances. For example, they could bring your retirement forward, change the expected return on your investments or simulate a fall in the market.
Dominic Lacey, a financial planner from our London office said: “When I first meet my clients, most are anxious about the unknown and what the future might hold financially. They aren’t certain whether they will achieve everything they want to. Cashflow modelling brings their finances to life – we can see in real time how these will pan out in the future and play with different scenarios.”
How accurate is cashflow modelling?
Cashflow modelling helps your financial planner make sensible assumptions about your future finances. Like any forecast it can’t be completely accurate, but it can identify trends and show you if you are on track to reach your goals. This is why many people review their forecasts each year and check their progress.
Dominic said: “After cashflow modelling my clients can see whether they are on track and where their future plans may be at risk. Occasionally I will need to have frank conversations about how realistic their goals may be, but most people welcome these honest discussions as they allow them to better plan for the future. I can then make practical recommendations to give my clients a far better chance of meeting their goals, whether they are on track or not.
Life throws up unexpected events – like ill health, redundancy, a new job or a new child. Each can impact on our clients’ financial futures. I revisit each client’s cashflow model at their annual review – they can then see what the impact these changes have had and whether they are still on track to meet their objectives.”
How can I get started?
If you are interested in cashflow modelling the first step is to contact one of Tilney’s financial planners for a free consultation. Simply call us on 020 7189 2400, email firstname.lastname@example.org or book a consultation on the Tilney website.