Cashflow modelling: the next best thing to a crystal ball

By David Lamb CFP™ MCSI 

In my job I use lots of different tools, from compound interest rate calculators to investment risk analysis systems.

But the one piece of equipment I would really like is a crystal ball. To see into my client’s futures would be invaluable. Unfortunately, despite years of searching, I can’t find one that works anywhere!

The next best thing to a crystal ball is cashflow modelling, because with reasonable and robust assumptions they can tell you so much about a client’s financial future and, therefore, the impact on their lifestyle. 

Cashflow modelling should be at the core of a professionally structured financial plan.

Just about every financial decision you are ever likely to make will have an impact on your cashflow projections and I don’t think you should buy an investment or protection policy without understanding how that product will benefit your projections.

Building a detailed cashflow model can be time consuming but the benefits are huge and, combined with a bit of lifestyle planning, can change lives.

Cashflow modelling can tell you so much, for example:

  • How much is enough to give you the lifestyle you want, without the fear of running out of money, whatever happens.
  • When you can retire and stop doing the things you don’t want to do and start doing the things you do want to do.
  • How much you will leave on your death and how much you need to leave. Consideration can then be given to how much you want to leave and the implications if these numbers are different. It may be that younger people with families need to think about contingency plans, such as life assurance. Older people, who may be leaving too much, can ask if they can spend more (think bucket lists!) or give money away during their lifetime, not when they die.
  • How much money you will need at different stages of your life.
  • How much risk you need to take with your investments. If you are never going to run out of money, you do not need to take unnecessary risks to get more!
  • Whether you need to worry about money, or not.

Helping clients see into their financial future can have a massive positive impact on their lives, but it is essential that these projections are reviewed on a regular basis.

Build your own cashflow model at