Lifetime financial forecasting

Financial forecasting, also known as cashflow planning is a concept many business owners or finance directors will be familiar with, it projects current assets and income and balances these against current and future expenditure and liabilities.

These same principles can be applied to personal financial forecasting and this approach is increasingly being seen as the best way for clients to make the most informed decisions on their personal finances. 

Financial forecasting helps to answer the big questions like:

  • How much should I be saving now for the future?
  • When can I afford to retire?
  • How much do I ‘need’ to realise from a business exit to provide with me and my family with long term financial security?
  • How much can I afford to spend making the most of my retirement and not run out early?
  • How much can I afford to give away to my family to help them get on the property ladder and not put my own long-term financial security at risk?
  • How much investment risk do I need to take with my investments/ pensions etc.?

Financial forecasting helps to identify if you are on track to achieving all your lifetime goals and objectives. Understanding if you are on track or not is better to know sooner rather than later, as this allows you to act on identified opportunities or threats. 

If you are forecast to have more than enough income and capital to support your lifetime goals and objectives this means you may be able to afford to consider:

  • Retiring earlier, we also offer a dedicated retirement planning service.
  • Confidently spending more to make the most of your lives
  • Tax-efficiently giving away more of your surplus income/ assets to family now as part of an estate planning strategy (given many gifts can take seven years to be effective for tax purposes)
  • Taking less investment risk on your investments/pensions etc.

Likewise, if you are forecast not to have enough income and capital to support your lifetime goals and objectives this means you may need to consider the following action:

  • Reducing your expenditure and saving more
  • Retiring later or doing some work in retirement
  • Reducing the amount of gifts to the family
  • Downsizing to release additional equity
  • Taking more investment risk with the expectation this will provide additional longer-term returns with your investments/ pensions etc.

The ‘what ifs’ of financial forecasting

Financial forecasts usually include a number of different scenarios and these can include several ‘what if’ worst-case scenarios. These could include; the premature death/ long term illness of a breadwinner in a family; an assumed investment market crash; and the potential need for costly long term care in later life. 

These worst-case scenarios allow you to make long term personal financial decisions from the most informed position.

Staying on track

To be effective financial forecasts need to be updated regularly to reflect changes to clients personal circumstances (births/ marriage/ divorce/ retirement/ business sale etc.), rises and falls in underlying investment values and changes in tax rules. Once a financial forecast has been established as part of the financial decision-making process it is relatively straightforward to update.

Does everyone need a financial forecast before they make a big personal financial decision? Not necessarily, but, as Benjamin Franklin famously said “If you fail to plan, you are planning to fail”. This approach is engaging and interactive and when combined with quality financial planning advice, it provides clients with the best chance of achieving all they want in life.

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“The three key elements for me in a financial advisor are trust, empathy and good communication skills and Ian ticks all those boxes and more... I come away from all our consultations content that they have been thorough, productive and that I am fully compliant in the direction of travel.”
Giles Ashman, Exeter
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