What is cashflow modelling in financial advice?
Cashflow modelling is a planning tool, not a prediction machine. It helps show how assumptions about spending, retirement, investment returns and other events interact over time.
What goes into a cashflow model?
A model can combine income, spending, pensions, investments, cash, property, debts and future events to illustrate how a financial plan might evolve.
The output depends on assumptions
Inflation, investment returns, retirement dates, life expectancy and spending assumptions can materially change the result. A useful adviser should make those assumptions visible rather than presenting one graph as certainty.
What decisions can it help explore?
Examples include whether retirement may be affordable, how much ongoing spending a portfolio needs to support, the effect of a business sale or inheritance, and the trade-off between different financial goals.
A model should change as real life changes
If cashflow modelling is part of an ongoing advice service, ask how often assumptions and actual figures are reviewed and what changes would trigger a new recommendation.