Personal Cashflow Analysis – Let’s Learn from Business

Financial planning is a relatively straight forward concept. It is about ensuring that you have the resources you need to live the life that you want. A comprehensive financial plan has many moving parts. The true test of a good plan, however, is how these “parts” can be addressed individually and collectively to achieve your goals and minimise your risks.

Some of these “parts” include:

  • Day to day financial management
  • Protection / Risk management
  • Savings and Investments
  • Pensions
  • Estate planning
  • Tax

The goals that you have in mind don’t necessarily have to be in the “Save the World” category but can be as straight forward as –

  • Ensuring that you will have enough income in retirement
  • Providing your children with a good education
  • Going on a family holiday once a year
  • Purchasing a holiday home at retirement

The approach to financial planning has traditionally been piece meal in its nature. While very good advice may have been provided for the various component “parts”, chances are it was delivered in isolation. This type of advice has its limitation, however, in the context of putting a plan in place for your life time. It is short term in nature and it struggles to give a “Big Picture” of your overall financial standing now and into the future.

Cash Flow Analysis

An essential but often neglected phase in the financial planning process is cash flow analysis. Cash flow analysis has been in use in business for hundreds of years but surprisingly has been adopted by very few individuals when it comes to arranging their own finances. This analysis sets out your financial position in terms of income, expenditure, assets and liabilities both now and into the future. This affords you the opportunity to have a very clear idea of your future cash flow position and how it will impact on your ability to achieve your goals and minimise risks. It is on this footing that a robust, accurate and adaptable financial plan can be implemented.

Top 3 Benefits of Cash Flow Analysis

  • It provides a clear and precise outline (both visual and numeric) of your current and future financial position
  • It facilitates the identification of risks and actions required to meet your financial planning goals
  • It allows “What if” scenario planning. This promotes sound decision making as it contextualises your current financial planning decisions and illustrates the future outcome and effect on cash flow of making these decisions
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