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Wouldn't it be nice to discover opportunities for wealth within your cash flow? Try cash flow modelling.
Cash flow modelling is a tool some financial advisers use to assess current and forecasted wealth, income and expenditure. It builds a picture of your finances now, in five years, ten years or further. And it’s from this informed place that advisers can recommend the best course of action for managing your money.
Let’s say you’re earning a decent income, yet your money seems to disappear, and you’re not sure where. Cash flow modelling can identify the money leaks and help build a framework for enabling the most effective and efficient use of this available cash. In other words, it can show your current financial position relative to your preferred position and goals.
Scenarios where cash flow modelling can help include:
- Planning for retirement and want to know how to make your money last
- Actively growing your wealth through an investment strategy and require guidance on issues like how much you can afford to spend
- Assessing which is the right property investment structure for your situation
- Planning to minimise tax liabilities
- Finding out the impact of interest rate rises on your investment strategies
- Calculating the most efficient way to pay off your mortgage
- Realising the financial implications of key spending decisions like renovating, holidays and your children’s private school education.
Forecast the sources and uses of cash with cash flow modelling. Find wealth opportunities you didn’t know existed. Protect yourself financially against future scenarios like having a family or moving into retirement. Work towards your version of a good life.
How does cash flow modelling work?
You can see how your decisions today will impact your wealth in the future.”
You will be asked to detail your income, expenditure, debts, investments and assets. Your adviser will want to know about incomings like wages, savings, borrowings and rental property income, as well as outgoings like bills and discretionary spending.
A cash flow model is generated using assumed rates of growth, inflation, wage rises and interest rates. The model should present a picture of your goals and your existing and future financial commitments.
Different scenarios can then be modelled based on the lifestyle or investment decisions you make. This way, you can see how your choices today will impact your wealth in the future. This insight is valuable in working out what are the most appropriate wealth management strategies for your circumstance.
Expect regular reviews and reassessments of the cash flow model to ensure the assumptions made on lifestyle and spending remain on track.
Cash flow modelling is one of several planning tools used by financial advisers to get a better view of their client’s finances. Book a consultation with a Yellow Brick Road financial adviser to discuss whether cash flow planning would suit your needs and objectives.
**The information on this article contains general information and does not take into account your personal objectives, financial situation or needs. If you require further information don’t hesitate to contact the branch directly.