Cash Flow Planning | Professional Advice | Paradigm Norton

Question 1

How do you take into account the uncertainty of the future?

Accepted Answer

You are quite right that we can’t know what the future will hold with absolute certainty. There’s a famous saying the “All models are wrong, but some are useful” (George Box, British statistician).The further out we look, even the wisest assumptions are likely to be wrong. However, that doesn’t mean that it is not a worthwhile exercise. A sailor still plots a course knowing that the winds and waves will take the ship along a different path.There are two ways we take uncertainty into account. Firstly, we spend time researching our assumptions for things like investment returns, inflation, spending and taxes. We set them to be cautious, but reasonable.Secondly, much like the sailor, we regularly review progress and the prevailing conditions. It provides an opportunity to adjust your plan or change direction/destination

Question 2

What information do you need to build my cashflow?

Accepted Answer

At a very high level we’ll need to understand five things:

What you own. This might include things like property, pensions, investments, and businesses.
 	What you earn. This includes any earned income (and/or dividends), income from other sources (e.g. maintenance, loan repayments, trusts, deferred consideration from a business sale), and money you receive from pensions or investments.
 	What you spend. A reasonable level of detail is generally helpful and breaking it down into categories is helpful. If you have regular commitments like mortgage repayments, maintenance, or bills it helps to split these out – and be clear on when they are likely to stop.
 	What you owe. Outstanding mortgages and loans. Knowing what the amount outstanding is, interest rates, and repayment terms is important.
 	Potential plans for the future that might impact any of these. For example retirement, selling a business, paying for a wedding, or potential long term care. If you have a rough idea of the amounts of money involved (and when) we can build that into your cashflow plan.

The software we use is extremely flexible and can help us explore different options, strategies, and ideas. It will take all of these into account together with our carefully researched assumptions about investment returns, inflation, and taxation.

Question 3

How does this help me know that I have ‘enough’?

Accepted Answer

Cash flow planning can help you to understand if you are likely have enough money (either now, or from your financial planning strategies) to fund your commitments and aspirations. Whilst our assumptions are designed to be reasonable, life sadly isn’t always as fair.As we build and examine your cash flow planning, we’ll stress test it thoroughly. As well as the impact of investment markets we’ll consider other events. What happens if you are unable to work? Or your priorities had to change as a result of a diagnosis or even death? For many people a combination of insurance (such as life insurance or income protection) and diversified portfolios helps to ensure that there is enough flexibility in your finances to weather these storms.By considering both of these types of scenario you can be clear as to whether you are on track to have ‘enough’. But perhaps the real question is are your plans ‘enough’ – are there dreams, aspirations, or goals that you’ve left on the table? Cash flow planning is a safe place to experiment with stretching the possibilities.

Question 4

Is cash flow planning a ‘once and done’ exercise?

Accepted Answer

Our circumstances, dreams, and aspirations sometimes change. Our money rarely operates in a straight line or perfectly in line with our plan.Cash flow planning is very helpful for making big strategic decisions, but it is equally useful for keeping on track. Adjustments and course corrections can be made where necessary – when done early they can be more of a gentle nudge than a major change.Revisiting the plan regularly helps us check that we are still aiming at the right destination. Steven Covey wrote that “if the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.”

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