What is cashflow modelling and how can it help protect my wealth?

Cashflow modelling is an integral part of the wealth management process. Anyone whose wealth grows beyond a certain size will soon realise that this blessing comes with the need to handle an increased level of financial complexity. More money tends to mean more complications and losing track of your finances is a genuine risk. Robust cashflow modelling can bring much-needed clarity and help to ensure your future remains financially secure.

So what is cashflow modelling? Cashflow models examine your assets and debt along with income and expenditure. Gathering this information allows projections to be created on your future finances. Building wealth sometimes leaves little time to stand back and take stock so cashflow modelling can help paint a clearer picture of someone’s financial health. Focusing in on what you have and what you owe, along with what you earn and your outgoings, will make sure you have not underestimated or overestimated your wealth and its potential.

The importance of cashflow modelling may only become clear later down the line. It is worth putting effort into this kind of wealth planning so you can achieve what you want to achieve in the future. This could be making sure you have the retirement you have always wanted, whether that involves travelling, new property or something else entirely. It may be that you are planning to leave a certain level of inheritance to your family and cashflow modelling can help you achieve that. Or you may want to make sure that you have enough funds available later in life to build an independent legacy such as a charitable foundation.

Exploring the possibilities

Cashflow modelling can be viewed as somewhat of a work in progress and is best treated as a snapshot rather than a permanent guide. Someone’s financial situation can change so cashflow models can always be updated when personal circumstances shift. Varied cashflow models can also be useful for contingency planning. It is useful to work with your wealth manager to come up with potential situations that may affect your financial health. Possible scenarios may include a decline in fortunes for your business or the onset of weaker economic conditions. Modelling for events such as these can help put your mind at rest and ensure you are better equipped to deal with them.

The benefits of cashflow modelling also extend into the realm of taxation. An Increase in someone’s wealth inevitably brings added complexity when it comes to their tax affairs and cashflow modelling can help ease the burden. It is possible to forecast the level of income tax, capital gains tax and inheritance tax a UK resident is likely to pay, whilst also taking into account the equivalent obligations overseas if necessary.

The big picture

Cashflow modelling is often complimented by a wealth management tool known as consolidated reporting. Consolidated reporting provides a full picture of someone’s wealth by creating a financial statement that brings everything together. This approach gives you an umbrella view of your finances and makes managing your assets simpler. Experienced wealth managers will often use both tools together to give clients the clearest possible picture of their financial situation before forecasting how that may play out in the future.

At W1M, we believe that good planning is central to wealth management. We like to work with our clients to make sure their financial future is well mapped out, allowing them to preserve the wealth they have worked hard to build.