The term “financial planning” means different things to different people, whether advisers or clients. Unfortunately, this means that many people think they are giving and getting great advice, but in reality, they are not.

Some advisers see themselves as asset managers and understand their job as knowing which funds to pick for their clients. Their client meetings focus on the money and the markets. The clients receiving this “advice” have been schooled over time by the adviser and often the financial press (we call this financial porn) to expect just this and no more. Most of these clients are left wondering if they have enough money to support them for the rest of their lives.

                                          The Importance Of Proper Cashflow

The stress this can cause often affects their health and even their relationships with loved ones, as the fear of the unknown gets worse as they age. What is missing in this advice relationship is proper cash flow planning, which allows the client to understand exactly where they stand financially at any point in time and what they can and cannot do when it comes to spending.

With this understanding, a client can know and decide what trade-offs, if any, need to be made to be able to do those things which are most important to them and their family. The big prize is peace of mind, knowing they will be okay and not outlive their money. (that’s the endgame!)

                                              The Importance Of Proper Cashflow

We recently met with a couple living extremely frugally, especially considering the investable assets they had at their disposal. Their adviser had invested their retirement savings and told them not to draw more than a certain percentage yearly. This may sound sensible, but if the adviser had spent more time understanding the client and their lifestyle needs and wants in relation to the funds available, they would have been living a totally different life.

                                                The Importance Of Proper Cashflow

In this case, once we had worked through our process with the couple, they were able to make the following enhancements to their lives and still have enough money to last them to the age of 120?!

  • Increase monthly income by 33%.
  • Bring their children and grandchildren to SA on holiday from Europe annually at the cost of R300,000 for the next 10 years.
  • Spend R100,000 on holidays for themselves every year till age 90.
  • Do home and garden maintenance of R50,000 per year.
  • Spend R20,000 more per year on leisure activities.

Strangely, they still felt loyalty to their previous adviser even though he had put them in a position that had caused unnecessary stress and restricted their lifestyle for years.

“Not knowing” is simply unacceptable when it comes to financial planning. We all have one life, which we should be living to the max and on our own terms. Without proper cash flow planning, the certainty you deserve cannot exist.

Dirk Groeneveld, Certified Financial Plannert. 

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