So why don’t we as people use the
same kind of tools? Planning our
personal cashflow across the decades seems such a sensible and obvious notion,
that it’s baffling why we don’t do it.
Perhaps we lack the kind of planning discipline that companies are
forced to apply, or maybe we just don’t know where to turn for help and
support.
Well, it’s time that we started
thinking about the concept of Personal Cashflow. Imagine if you could create a visual concept
of where you are right now in your life, and how your personal cashflow might
pan out across the years and decades to come.
How useful would that be if it
helped you plan for the things that life will throw at you, whether that’s
career ups and downs, marriage and starting a family, or enjoying a prosperous
and rewarding retirement?
Fortunately, the launch of an
online tool to help us do just that will enable all of us to apply the same
kind of rigour to plotting the various stages of our lives as a business will
apply.
To illustrate how this can work,
let us introduce you to Joe. As we meet
Joe, he is 25 years old, single, living in rented accommodation, and is a
self-employed plumber.
Joe wants to buy his own home by
the time he is 30, so he is saving into an ISA, with the primary objective of
putting aside enough money for a deposit on his own home in five years’ time. He is earning £30,000 a year from which he
also contributes to a pension, with a long-term view of providing enough money
for when he retires.
A basic cashflow forecast can show
these projected events in his life, running right up until he retires at age
68. Of course, this assumes that nothing
else will change in his circumstances which at age 25 is highly unlikely. The beauty of such a dynamic cashflow tool is
that it can start to build scenarios, predicting the impact of events on his
future cashflow – and enabling him to plan to mitigate such events to ensure he
remains on track to achieve his financial goals.
Of course, life doesn’t always
proceed just as we planned. In the next
part, we find out what happens when Joe faces the first challenge to his life
plan, and how the online cashflow modelling tool can help him meet that challenge
and stay on track.
The next part of Joe's journey can be found in Scott's next article Cashflow - Facing up to the consequence of illness.
