Cashflow - It's not just for business

Scott Hansell
Financial Planning
Stock image of person looking at charts

The rise of personal cashflow planning

Stock image of person looking at charts

Part One: Introducing the concept of personal cashflow

‘Turnover is vanity, profit is sanity – but cashflow is reality’.  That is an oft-quoted maxim in business, which emphasises the importance of keeping a grip on the cash situation at any given time in an enterprise’s development, whether it’s at the exciting start-up stage, the difficult growth stage or the comfortably prosperous stage. 

But if this applies to businesses, why shouldn’t it apply to us as individuals?  The stages of our lives are not so very different to those of a company; our careers develop over a long period, we are buffeted by expected and unexpected headwinds along the way, and we need to have a succession plan for when we put our feet up at the end of our working lives. 

Businesses have access to all manner of cashflow management tools, and those who choose not to avail themselves of such support invariably encounter trouble.

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.

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