Short-termism is rife in our modern world. Politicians concentrate largely on their term of office, fashionistas work from season to season, large companies focus on quarterly performance and traders react second by second.
However, this can be problematic. Our focus on the here and now means that we tend to favour short-term payoffs over long-term rewards and this makes us prone to neglecting the wellbeing of our future selves.
This is the case in many different areas of life but it is certainly true about financial planning. If we focus only on short-term planning, it makes it very difficult for us to see the opportunities and threats in the future. In financial terms, these are numerous: taxation, potential loss, inflation, and lack of a cash reserve in times of an emergency are just some of the issues a long-term investor may face.
And yet there is a paradox at work because while our decision-making is often based on short-term thinking, that doesn’t stop us worrying about the future. Most of my clients, even the high earners, have the same concerns: retirement, education, downsizing property, and long-term care.
This is why a large part of my job is getting individuals to look at their finances through a longer lens.
One of the tools we at Infinity use to address these long-term worries is a financial forecast. This is a comprehensive view of a client’s finances over the long-term, which allows them to make informed long-term financial decisions.
Four ways a financial forecast is essential for your long-term planning
1. A financial forecast helps you to make informed decisions in the short and long term
The questions I hear most often from clients include the following:
- Can I retire five years earlier?
- Will I be able to continue to pay for my child’s education?
- Will my income in retirement be enough to meet my expenditure needs?
- What level of investment growth do I need to achieve?
A financial forecast is essential in determining the answers to these questions and, more importantly, working out the actions required to achieve the outcomes that you want.
2. A financial forecast provides a long-term picture of the impact of different factors on achieving your objectives
Tax implications, investment risk profiles, income surplus/deficit, and inflation will all have an impact on if and how you achieve your objectives. A financial forecast builds these into your plan to avoid nasty surprises in the future.
3. A financial forecast allows you to compare different financial scenarios
Financial planning often includes a whole host of ‘what if’ scenarios, such as potentially helping children onto the property ladder or covering international university fees to enable children to graduate debt-free. A financial forecast enables clients to forecast the feasibility of these potential plans.
4. A financial forecast acts as a check on the resilience of your finances
If 2020 has taught us one thing it is that financial resilience and the ability to assimilate loss is vitally important. Infinity’s financial forecasts incorporate a stress test to check how resilient a client’s finances would be in the event of an unexpected loss.
I hope I have convinced you of the importance of a financial forecast. It’s also important to note that a financial plan needs to be reviewed as circumstances change, which is why I work with all my clients on an ongoing basis to ensure that they stay on track to meet their future goals.
If you would like to find out more about financial forecasts, or if you think it is high time you subjected your finances to one, why not get in touch?
Email me at luis.jimenez@infinitysolutions.com to set up an appointment to ensure that your long-term planning is on target to secure your future financial wellbeing.
Financial Consultant
I believe in providing clients a detailed financial plan, in the form of a cash flow, in order for them to make an informed decision when it comes to their investments and protection objectives.
