When advising our clients what they should be doing with their money today, we’re thinking about what that money will be able to do for them at some point in the future.
Even if we are not using a cash flow modelling system, our thoughts will always look to the future and where money needs to be invested today, to make the best use of it.
Cash flow modelling can help clients visualise their future and dig into what their monetary goals are. Many clients will state that their financial goals are ‘safety’ or ‘financial independence’, without understanding what that means to them.
Using cash flow modelling, you can picture their future expenses, their big goals and dream purchases, aligned with their current financial plans, and take action to make those dreams a reality.
Through these conversations, it may come to light that financial security for one client will be a small, downsized house to live in forever, with the mortgage paid off, and the local football team’s season ticket paid for, every year for life. Another may be dreaming of the holiday house in Spain, where all the family can spend their summers.
But the key to both of those conversations is that we are gaining an understanding of the lifestyle we are looking to support throughout the life phases of our client.
We can help place monetary goals into the cash flow plan that really bring home why we are acting now, and what we are helping to fund in the future.
Technology today – what’s available?
Long gone are the days of plotting out what a cash flow plan might look like on a piece of paper or in a spreadsheet.
Technology within financial advice has made cash flow planning more engaging and interactive, with most technology providers offering solutions that can be used with a client in a planning meeting, rather than spending hours setting up a cash flow plan ahead of time.
With technology able to adapt to changes in the cash flow plan, advisers can quickly demonstrate the impact of saving an extra £100 a month or using that new pay rise to help to grow their pension fund more quickly.
This type of ‘on the fly’ planning can really help demonstrate to a client the power of compounding interest, of saving early in life, or how making some small tweaks to their lifestyle could have a profound impact.
Modelling: things to consider
As technology improves, cash flow modelling, along with most other financial planning tools, can start to stray into the world of over-complication.
It is important that we understand what our cash flow modelling solution can and cannot do, and that we can explain this to a client. We need to know where our solution can be used to give advice and where a different tool would be more appropriate to add value to the financial advice process, not complicate it.