Lifetime Cashflow Planning
Great Financial Planning does three things; helps you understand what you have got and what it all means, identifies what you can do to control more your financial future and evidences how you can be more money efficient. At the heart of our planning service is your Lifetime Cashflow model. It focuses on two things; your spendable wealth (your money pot) and how it is likely to change over time (your wealth curve). Essentially, this is about making sure you can live the life you want without running out of money (or accumulating too much of it)!
The Money Pot
Take a look at this example. Here we can see Mike and Amanda are paper millionaires BUT, nearly 70% of their asset bank is property. Not the easiest thing to use if you want to pay for that holiday of a lifetime. Sure, you could sell it but that is not easy or cheap to do. Not 55 yet? Hah, try asking for some of your pension pot! (Oh, and even if you are over 55, taking money from your pension could be a really bad move dependent on your financial position and priorities)
Spendable Wealth is the key here. That's where all aspects of financial planning start and end.
The Wealth Curve
So now we know what you have. We need to actually understand what it means in terms of your future financial need. Easy? In principle, and with the right tools, yes. We use the best tools available (in our opinion) for producing really useful forecasts of future wealth. If we know what you have today and can make some basic assumptions about future income, spending and investment returns, we are a big step closer to our two major goals; to better understand what you have and to identify how to control it.
Take a look at this example. Here you can see Mike and Amanda today have just over £110,000 "in the bank" (as seen in the net worth table above). We can also see that whilst they continue working for another 7 or 8 years, their spendable wealth pot is just going to get bigger. However, what they need to know, and what we help them understand is that without making different choices, they will actually run out of money at age 72.
Only at this point can we start to play with different choices. This is actually where things get really interesting. What if they worked an extra couple of years? What if they found ways to earn a bit more? What if they cut back on their spending? What if they released some wealth from other means (maybe from a property downsize)? What if they made their investments work a bit harder?
As you can clearly see, whilst, in their "alternate" scenario, they still run out of money, now that doesn't happen until they are 93! And don't worry. This graph is just their spendable wealth. They still have their home in the background.
Too Much Money?
Sometimes, actually, quite often with our clients, the issue isn't running out of money but actually having too much of it. Hmm. Nice problem to have but a problem nevertheless. In our experience though, people don't often recognise themselves as being in this fortunate situation. For these people, our Comprehensive Financial Review is invaluable.
Imagine if you could be reasonably sure that you had more than enough money secured for a lifetime of living a certain way. Wouldn't you choose to do things differently? Maybe have an extra holiday or two? Change the car a bit more often? Bring forward your retirement by a few years or even spoil the family a bit more? Bottom line? In having a good idea what your financial future might look like, you can make much better, more informed choices today.