How much money is enough? Mary Waring of Wealth for Women argues the case for cash flow modelling

The heart of sound financial planning process is being able to work out whether clients will have enough money to live the life they want to live both now and in future. The peace of mind that comes from using cash flow forecasting cannot be overlooked argues Mary Waring, Managing Director, Wealth for Women, especially when it comes to advising clients going through divorce.

The question I am always being asked by my clients is “Is it enough?”  Of course, ‘enough’ means different things to different people. What may sound like more than sufficient for one person may barely scratch the surface for another. It all comes down to lifestyle: what level of spending a client needs to achieve their goals and the lifestyle they really want.

Is financial planning different?

That’s why the financial planning process, as opposed to financial advice, is vital in answering this question. Financial advice will cover how to invest someone’s money. But it doesn’t go that stage further to show whether it is enough to fund the lifestyle your client wants in the future.

Imagine someone slogging away in the job they don’t enjoy, purely because they feel they need to keep working for the high salary they’re earning. What if they already had enough saved for their retirement? What if they don’t need to be in such a high paying role and could afford to take a different position that they would love, but would pay less?

What if you could tell your client that although they are happy with taking a certain level of risk with their investment portfolio, they could afford to achieve all their aims by taking less risk, and settling for a lesser return?

Such is the power of financial planning that I really believe it can change clients’ lives. I’ve had the enormous joy of being able to show clients that they can retire earlier than they had planned, once we’d done this exercise.

Knowing your client

My typical client is a woman going through divorce who has been a full-time mum, and therefore has not been earning an income in her own right. She has not dealt with the finances during the marriage. She’s taken full responsibility for looking after the children, the house etc., but her husband has looked after the finances.

This is a wonderful split of duties whilst they’re married. After all, if he feels more comfortable dealing with the finances it’s very sensible that he takes responsibility for this.

However, this plan totally falls apart if things go wrong in the marriage and they get divorced. Throughout all of this emotional upheaval, she now must somehow get to grips with her finances. It can be a truly distressing time for her. It’s not unusual that during my first telephone conversation with a potential client she is in floods of tears. It’s the total terror of the unknown and what her life may look like after the divorce. Her goals will have shifted, and her confidence in being able to achieve those goals is often in question.

A different approach

So, while she doesn’t need different advice from men, she will often need a different approach from her adviser.

We need to understand that she will be feeling particularly vulnerable. She will need to be handled very delicately and given a lot of care and comfort to ensure she can face the future positively, and with the peace of mind that having a well thought out plan in place can provide.

She will probably feel totally overwhelmed. Of course, there will also be well meaning friends and family offering anecdotal, and often conflicting, advice as to what she should be doing. She just doesn’t know where to turn.

As advisers, we know that what our client really needs most is some certainty. She needs to know what her future will look like and how much she can afford to spend each month knowing she won’t run but of money in future.

As a non-earning spouse, it’s likely that whatever she gets from the divorce settlement will be the amount of money that must last her for the rest of her life. She may be earning herself but it’s often a relatively small amount and often she has limited pension provision. This is an extremely difficult position for her to be in. By understanding this, and helping her to make sense of her situation, we can add the most value for her.

Cash flow analysis is key

Going through a detailed cash flow planning exercise can give our clients the certainty they need.  By working closely with her we look at, in an ideal world, what she’d like to spend both now and in the future; what her current and future earning are;  we also look at her goals for example whether she’d like to help her children with some funds for a property purchase, for instance. These all need to be identified, prioritised and costed.

We also look at whether she’d like to leave any funds for her family or for her children or favourite charity when she dies. It’s not unusual for clients to love to do this in an ideal world, but recognise this just may not be possible.

Knowing the future income and expenditure and her current net worth, we can then look at what her future cash flow looks like. Using a software package that is very visual (eg Truth or Voyant) will allow her to see what happens to her money without a need to understand the detailed workings.

I use Truth and the graph shows her current money in blue; as soon as she runs out of money it turns red. It is immediately obvious when a problem arises.

There have been several times when I can see that my client will need to downsize in the future, but they have been totally against that idea. Rather than trying to persuade her that’s what she needs to do, I go through the cash flow model with her instead.

If she is happy with all the income and expenditure figures, then the cash flow must be showing her the correct answer. This is a very different approach and one which resonates with the client.

If she is going to run out of money at some point, we can look at several options which can address this: reduce expenses, aim to work longer than planned and so on. But it is often only by downsizing that the gap in funds can be plugged.

The wonderful thing about doing this exercise is that she’s not being told this, she can see it for herself.

What she most wants is certainty. Cash flow planning absolutely provides that for her. Even if her future is not exactly as she has planned, it gives her that certainly as to what to aim for and that is hugely empowering.

As one of my clients told us: “The work we’ve done has provided a framework for both the long and short term. Provided I keep to that, I know I’m OK financially. It makes having a future possible when there’s a framework to follow. “

If you’re not currently using cash flow modelling in your business, I strongly recommend that you  investigate this service. It does take some time to learn how to use the software effectively, but it will totally transform your client meetings and the value which your service brings to your clients lives.  It helps you to build trust and establish powerful, long term client relationships that last.

It will allow you to answer the question: Is it enough?

About Mary Waring

Wealth for Women is a financial planning firm which specialises in providing advice to women who are going through divorce or bereavement. Its founder and Managing Director is Mary Waring, Chartered Accountant and Chartered Financial Planner.

The firm’s typical client is a female, aged 45-60 who has not earned during the period of the marriage.

Follow Mary on Twitter @MaryWaring

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