Modelling your cash flow is important, right down to the cost of your pet’s food, as your expenses are a reflection of your lifestyle. Plus, it helps your planner or “thinking partner” to really get to know you.
If a planner doesn’t have cash flow information, then the approach turns to answering the question: “Can I live on $80,000 a year indexed after tax in retirement?” And that, in turn, reduces a lifestyle plan to a simple retirement assessment, and all of the “thinking” shifts to the financial planner’s area of expertise, leaving you out. It is important that you discuss and model the trips you want to take, the vehicles you want to own, the donations you want to make, and all the rest, to see the impacts on your future.
What if you find you haven’t saved enough and $80,000 a year doesn’t work? You could then see if $70,000 a year works; if it does great, problem solved. But what did you give up to make it work—travel? Recreational activities?
Keep in mind that the savings required to provide $80,000 a year in retirement income to age 95 is a lot more than is required for $80,000 a year of income to start, then decreasing as you age and slow your travel, vehicle purchases, sell your home, move to an apartment, etc.
Including cash flow details in your plan and imagining how they may change over time is what keeps you involved and thinking—and it’s that thinking that will lead you to your biggest insights. A colleague of mine often says: “If it’s not a cash-flow plan, it’s not a plan.”
Reviewing your planning model annually, making adjustments and checking assumptions, builds your confidence in the model and its outcomes, giving you more and more financial clarity, leading ultimately to financial freedom.
Finally, Tom, there is no point in doing a plan if you’re not going to act on some or all of the solutions you arrive at. Now, do you need a plan? I don’t know. If nothing here resonates with you, then maybe not. If you’re not sure, contact a planner for an initial consultation which is often offered at their own expense. During that time, they’ll confirm if they can help, and you’ll assess their approach to see if it fits your needs. Hey, and with Zoom, you won’t even have to leave the house.
Allan Norman is a Certified Financial Planner with Atlantis Financial Inc. and can be reached at www.atlantisfinancial.ca or [email protected].