Many of us have trouble forecasting our finances for next month, let alone decades in the future. That’s why retirement planning can be an overwhelming task for many. A cashflow analysis could be just what you need to flag potential issues in the future and act now to avoid disaster. Adon Beddoes highlights the benefits of cash-flow analysis for expats in Asia looking to optimise their financial planning.
Cashflow analysis: a useful financial planning tool
What will you be doing in 10, 20…50 years’ time? And will you have the financial resources to live the life that you want?
Those are difficult questions for many of us to answer.
Yes, life is unpredictable, but financial planning is one way to mitigate that, and financial planning tools can be used to assist with the job.
Cashflow analysis is one of them.
What is cashflow analysis?
Cashflow analysis involves assessing your inflows and outflows of cash over a specified timeframe to predict your future finances. The resulting forecast will show you how much money you could have in the future and whether you are on track to achieve your goals.
Effectively, it will enable you to see if you have the financial resources to live the life you want, or whether you need to make changes now to secure the financial future you dream of.
A cashflow analysis is as close as you can get to a financial crystal ball. It allows you to clearly visualise the ebb and flow of your finances, highlighting where problems may arise so that you can take action to avoid them.
I use cashflow analysis systematically with my clients to produce tailored financial plans aligned to their circumstances and ambitions. Infinity has invested in sophisticated software that facilitates this task.
What does a cashflow forecast look like?
Infinity’s cash flow forecasts analyse your incomes, expenses, savings, and investments to illustrate whether your financial objectives are achievable, and how certain decisions regarding your finances will be likely to affect you in years to come. The figures include an expected rate of inflation and an estimated return rate, as well as the client’s current tax position.
The report will include:
- An introduction and overview
- Assumptions that will emerge out of a discussion with your financial adviser. Here’s an example:
- A list of your savings pots and investments
- A list of your savings withdrawals
- An outline of charges and fees
- A list of incomes from all sources including rental income, salary, state pension, private pensions, and inheritance
- A detailed list of monthly expenses by category including rent, socialising and entertainment, food and housekeeping, meals out and takeaways, holidays, clothing, fuel, life insurance, pension, etc
Using all this information, your financial adviser will be able to produce some graphs to clearly demonstrate your long-term financial situation. The first of these is a cashflow forecast. Here’s an example:
Your adviser will also produce a graph to show your savings over time….
… and a graph to illustrate savings and cashflow
A timeline will indicate important future events such as retirement, state pension age, inheritance, life expectancy according to ONS figures, and a mortality date that far exceeds that, to err on the side of caution.
Finally, a detailed breakdown will give a year-by-year account of:
- Savings at year start
- Total income
- Total expenses
- Total contributions
- Net withdrawals
- Total charges/fees
- Savings at year-end
This will give you absolute clarity over how much money you will have at any future point in your life. Adjusting any of the figures will recalculate the entire financial plan. This enables you to see what would happen if you decided to retire earlier than planned, or if you converted some of your cash savings to investments for a higher return.
Ten benefits of cashflow analysis
Clearly, a cashflow forecast is an extremely powerful tool that empowers my clients to achieve their financial goals. These are the main benefits of cashflow analysis:
- Cashflow analysis will give you a comprehensive overview of your finances
- Cashflow analysis provides a clear roadmap for your financial future
- With a cashflow forecast, you’ll no longer need to wonder ‘Do I have enough money saved for retirement? You’ll have a definitive answer.
- Cashflow analysis enables you to tailor savings and investments to your goals
- Cashflow analysis could enable you to retire earlier
- Cashflow analysis can help you identify surplus income that can be diverted into savings and investments
- Cashflow analysis will help you avoid an income shortfall in retirement
- Cashflow analysis flags up future problems, enabling you to take corrective action now
- Cashflow analysis could enable you to make the most of the investment opportunities available to you as an expat in Asia
- Cashflow analysis can help you mitigate risk exposure
Be empowered to achieve your financial goals!
Cashflow modeling empowers my clients to make positive decisions to reach their financial goals. It is useful for retirement planning but whatever your objectives – funding a child’s education, saving enough money to purchase a property, etc – it’s an invaluable tool in providing clarity on what you need to do to achieve them.
A great part of my job is showing clients how the decisions they make now can make their dreams come true. Seeing a clear visual representation of their finances gives them the confidence to make bold and life-changing decisions while balancing risk.
If that sounds good to you, get in touch for a free consultation with me.
Chartered Financial Planner
It is my fundamental belief that financial planning makes life better. I enjoy helping my clients work towards their financial goals to give them freedom and choice.