May 18th, 2023

What is cashflow modelling and how could it benefit your clients?

As they progress into mid- and later-life, your clients might have many questions on their minds – especially when it comes to their finances.

They could be wondering if they have enough money to retire at the age they desire, see their lives through comfortably, or provide for the next generation, to name just three common examples.

While there is no crystal ball that can answer these questions with 100% accuracy, most financial planners use one critical software tool to help measure a client’s future financial viability.

This tool is known as “cashflow modelling” or “financial modelling” software. Pioneered by the late Paul Etheridge MBE, this technology uses graphs to visually display a person’s potential future financial situation, depending on variables that could alter their circumstances.

So, if your clients are looking for financial peace of mind as they age, it could be that cashflow modelling imbues them with exactly that.

Read on to find out how your clients could benefit from this software, and how we can use it to help bring their goals to life.

Cashflow modelling lets your clients test their assumptions about their financial future

One of the questions financial planners are often asked is: “do I have enough money to last the rest of my life?”

While we can sit and review your client’s circumstances on paper, and answer this question as clearly as we can, cashflow modelling software uses detailed analysis of many variables to help them test their assumptions of their financial future.

First, a financial planner will take note of your client’s current financial circumstances. These include:

  • Personal details, such as their age, marital status, and if they have children
  • The value of their pension
  • The value of any properties they own
  • Their regular income from employment, and the time frame over which they expect to receive it
  • Other income, such as from buy-to-let properties
  • The income and other assets held by their spouse or partner
  • Any cash savings they hold
  • The value of their investment portfolio
  • Annual pension contributions
  • Their State Pension eligibility
  • Any inheritance they have or are about to receive
  • Health and wellbeing factors that could affect their finances, such as long-term disability
  • Any debts they have left to pay, including their mortgage
  • The tax they currently pay
  • Their overall annual expenditure.

Once they’ve grasped these variables, a financial planner can then look at your client’s goals for the future. These may include:

  • The age they want to retire
  • How many years they expect to continue living
  • The ways they wish to help the next generation, such as providing home deposits or paying for weddings
  • Their travel (or other costly) plans for retirement.

The cashflow modelling software can then model their proposed financial circumstances over the coming years of their life. It could let them know whether they can afford to retire when they want, help family financially, and have enough to live comfortably for the rest of their days.

In addition, the software can add in external variables – including, crucially, the effects of inflation on your clients’ wealth. With inflation rising throughout 2022 and remaining high so far in 2023, this function could be essential to help your clients understand how the wider economic landscape could affect their money going forward.

This process can be hugely powerful for clients who have always made rough assumptions about their wealth. Cashflow modelling can challenge these assumptions using hard data, and help your clients make clear, confident decisions that could benefit their futures.

Financial modelling software gives your clients the opportunity to ask important “what if?” questions

One of the most helpful features of cashflow modelling software is its ability to produce different outcomes based on variables the user enters.

Indeed, it is likely your clients have “what if?” questions on their minds, such as:

  • “What if I or my spouse passed away unexpectedly – could my family still continue our lifestyle?”
  • “What if I or my spouse became seriously ill and couldn’t work? Could we afford to modify our lives accordingly?”
  • “What if I want to retire earlier than I originally planned?”
  • “What if I need to move into a later-life care facility later on?”
  • “What if my children need additional financial support in the coming years?”

When they visit a financial planner who uses cashflow modelling software, your client can have these questions answered with some accuracy.

Of course, the software is not a certain confirmation of their financial future, but by altering the variables entered into the calculator, your clients can see their potential circumstances modelled clearly, usually in graph form.

Seeing their futures modelled using the data they provide could offer immense peace of mind to your clients. Whether they are ahead of, behind, or exactly where they want to be when it comes to their wealth, obtaining a clear picture lets them work towards achieving their goals more accurately.

The combination of human knowledge with technological analysis can provide an unparalleled financial planning experience for your clients

When your clients seek advice from an experienced financial planner, they can truly get the best of both worlds: human knowledge paired with the technological analysis of their wealth.

Indeed, cashflow modelling is not a replacement for bespoke financial planning, but rather an aid that helps us put our clients’ circumstances under the microscope.

With this information, we can guide your clients in forming a robust financial plan that takes many future possibilities into consideration, while answering any questions they may have along the way.

The adept combination of human and technological financial planning could revolutionise your clients’ financial futures and set them on a solid path towards achieving their goals.

Get in touch

We’re here to advise you and your clients on all aspects of financial planning. If you have clients that would benefit from cashflow modelling, or you’re interested in how you can work more closely with us, please get in touch.

Email or call 01905 619 100.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

The Financial Conduct Authority does not regulate cashflow planning.

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