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Cash Flow Modelling and Lifetime Planning are two very topical subjects in the financial services industry. But what do they really mean and how can they help people both now and in the future?

As a company we have been doing a great deal of training and learning in this area over the past year or so. How best to utilise the tools, collate and interpret data, present results and perhaps most important of all what corrective action to take when the results are not favourable.

“Garbage in garbage out” was one of my favourite quotes reiterated time and again by one of the recent course tutors. Quite simply she clearly meant that if initial data is inaccurate or incomplete then you had no chance of producing an end plan that had any resemblance to reality.

In layman’s terms - most people understand cash flow. In fact most people practise and manage cash flow on a regular basis and are very good at it. In a lot of instances they know that they will receive a monthly salary – an inflow – and they know they have monthly bills to pay – outflows. A lot of people are also prudent (or lucky) enough to be in a position where their own personal inflows are greater than their outflows.

Most people who ever sought their own independence will recognise the circumstances above even though it is a very simplistic overview. However life changes; human nature lets people aspire and dream. One monthly inflow and a handful of manageable monthly outflows is not how people choose to run the rest of their lives. The obvious situation is around retirement, whenever that may be, when the salary inflow suddenly dries up. Unfortunately the outflows are still occurring and in many circumstances have grown bigger. Not to mention the big one off outflows – a world cruise, holiday home in the Med, a child’s wedding or grandchild’s school fees.

So why should they consult a financial planner?

In simple terms we can draw up a clear and concise financial plan, a roadmap to follow and ensure your dreams and financial goals are reached. We can build and grow sources of cash that can be turned on at the most suitable future date so that your own personal reservoir never dries up. All outflows have been planned and catered for – even the emergency ones.

The technical stuff like asset allocation, tax relief, high Alpha and Sharpe ratios can be left with us. If certain products will boost your plan – pensions, VCT’s, Investment Bonds – let the FMB professionals research, analyse and recommend the most suitable.

All you need to do is sit down once a year with your dedicated planner and have a look at your own personal roadmap. Are we still on course – yes – great! Have we taken a wrong turn – oops - well we will just retrace our steps and get back on the right path again.

It’s not rocket science but it does take two to tango. Which brings me back to the beginning and the quote of the week – garbage in garbage out. Trust is crucial, it needs to be mutual and we need clients to engage. If they do and they provide the most accurate and up to date information about themselves we can then produce the most detailed, personalised and easy to follow roadmap. One that should ensure you do not get lost too many times on life’s eventful and glorious journey.

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  • Please Note

    The Financial Conduct Authority does not regulate cashflow modelling.

  • Please Note

    The Financial Conduct Authority does not regulate tax advice or trust advice.

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