By ROBIN POWELL
There are all sorts of reasons for using a financial planner, but the most important of all is surely peace of mind.
Life’s journey is full of uncertainty. That’s what makes it so exciting, but also, let’s face it, often rather scary.
What we all need is a sense of security — the reassurance that, whatever the future holds and whatever nasty surprises lie in wait, we’re going to be OK.
Am I going to be OK?
A good financial planner works in much the same way as a good doctor. You go along with what you think is a simple practical financial issue to resolve — whether it’s an unexpected tax bill, an inheritance, a looming retirement or divorce.
But usually, behind each of those superficial issues, there is a tight knot of insecurity and trepidation. Each question you want to ask often masks a bigger underlying question that will not go away: “Am I going to be OK?”
With the right financial plan — one that takes account of uncertain outcomes and focuses on controllable factors — you can feel more resilient, more rested and more ready to address the other issues in your life.
Embracing uncertainty
Uncertainty can never be totally eliminated. We had a reminder of that with the sudden appearance of the COVID-19 pandemic. Externally, laws can change, economies can slow, new technology can upend established ways of doing things; internally, changes in lifestyle arrangements, family circumstances, health and income can force alterations.
What an adviser offers isn’t certainty but a set of tools to provide a greater feeling of control, a structure to manage the complexity and a confidence that they’re going to be all right. Those tools include a financial plan and a robust and evidence-based investment strategy.
But another tool in the planner’s toolbox that doesn’t receive nearly enough attention is cash flow modelling.
What is cash flow modelling?
A cash flow model gives a detailed picture of a client’s finances — their assets, investments, debts, income and expenditure — now and in the future. This picture is projected forward, year by year, using assumed rates of growth, income, inflation, wage rises and interest rates.
Inevitably cash flow models require a large degree of educated guesswork, but they help clients to see, in a very visual way, what the future might look like.
It provides the client with answers to important questions. Those questions might include:
— What would happen if the market fell 30% tomorrow, or just before I plan to retire?
— Will I be able to fund my children’s or grandchildren’s education?
— When can I afford to retire? And what will my regular income be?
— How much do I need to sell my business for?
— Am I going be able to help my children onto the property ladder?
— Could I work part-time to care for my elderly parents?
— Can I afford three foreign holidays a year into my 60s and 70s?
— Am I in danger of running out of money if I live longer than I’m expecting?
— Will I be able to hand wealth down to my children and grandchildren without them facing a large tax bill?
An investment worth making
In our experience, having answers to these questions is often the one aspect of our service that clients value more highly than any other. And that’s why cash flow modelling sits, alongside the financial plan, at the centre of everything that RockWealth does.
Sadly, not all financial planning firms take cash flow modelling as seriously as we do. A study in January this year found that only 34% of firms offered cash flow modelling to all clients, and 8% did not offer it at all.
So, are you benefiting from proper cash flow modelling? If not, why not get in touch with us and find out how more about it the clarity and confidence it can give you? That’s definitely an investment worth making.
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CAN WE HELP?
If you’re looking for a financial planner, why not get in touch?
We serve clients in Brighton and across both East and West Sussex, as well as in London.
If we can’t help you, or feel you would be better speaking to someone else, we will be happy to point you in the right direction.
Picture: Matese Fields via Unsplash
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