By Andrew Wong     20th March, 2004

Cashflow of 
Your lifespan

- Financial Planning
and Investment 
Go Hand in Hand -


How do you like to have a simple exercise that gives you a glimpse of your own future?

The future also includes the corresponding ages of your family members at various phases of your life.

Yes, it is a simple exercise, what you need is a spreadsheet tool, make some assessment of your current financial situation, plot year by year your cashflow situation, then your future scenes become clearer.

What is interesting is if you do not like the plotted future scenes, you could do something different today to change the course of your life with your preferred outcome.

I develop a template using Excel spreadsheet whereby you can key in a few essential data to see the future scenes financially year by year till you say bye bye to this earth at an average age of 75.

We will use this simple model to discuss a few financial scenarios.

A Typical Professional with a Large Corporation

We take a case of an executive with about eight years to retirement at age 55. He has a few children who are still schooling. A plan is required for children higher education. It is obvious that budget can only be made for local colleges or universities, as oversea education expenditure is beyond the reach.

This cashflow model shows that with whatever maybe the existing saving in cash, with net monthly saving (after deducting expenses from income), the cumulative cash is draining fast due to high expenses in children higher education, you can see from Graph #1 the initial part of the graph declining.  

At age 55, there is an influx of cash due to EPF and / or gratuity from the company. The graph starts to rise very sharply. From then onwards, assuming there is no more income, there will be drain of cash during the retirement period, due to daily expenses and another major item on medical expenses, other expenses like children wedding, house renovation leisure, etc.

In this particular case, the cashflow is negative at the age of 60+ onwards.

The above computation is based on interest rate of 2.5%, i.e. whatever maybe the cash available, deposit in the bank to generate 2.5% return. (However, if you take inflation rate as 3%, the net interest is –0.5%, which will make the cashflow negative at much earlier age.)

(There are several assumptions made in this template, with conservative estimate. For example, no income during retirement, children after finishing study and working for a few years, they could not contribute much to the parents, as they need to work hard against the high cost of living etc.)

Note: This is a cashflow model, i.e. real cash with high liquidity. It does not take into consideration of property assets, as property is not cash, until sold. Hence if the lifespan cashflow is positive with real estate property all paid, it is double bonus!

Obviously something needs to be done now, or he needs to remain productive with income during “retirement.”

Investment Strategy to Improve Cashflow

Assuming that this professional takes up serious study on investment as a way to improve his cashflow situation, i.e. to find a investment instrument that can give consistent return of money more than the bank, and see what changes can be made.

This spreadsheet template can take different values of interest rate or investment rate of return for simulation.

A rate of 5 % is chosen, consistent return of 5% from now till bye-bye.

Now the graph shows no more negative cashflow till age 75.  

Now try 7% and 10%. The money is growing, even after deducting the monthly and yearly expenses as per original estimate.  

Money is GROWING from rate of 7% onwards!

Financial Planning, Focus and Strategy

From the above discussion, it is clear that it is worthwhile to start with financial planning with the above type of cashflow scenarios building. Then we determine what type of rate of return of our saving or capital can bring about a positive cashflow.

We need to study for types of investment instrument that can bring about such rate of return.

This is the case for those who over years have good discipline in saving. Now the challenge is how to make the saved money grows faster CONSISTENTLY, year after year.

Financial Planning Industry – Beware!

Financial planning industry, like Unit Trust institutions, also carries out such analysis of the financial needs projecting into the future.

However, as they have products to sell with vested interest, one has to be careful of the approach they recommend.

Generally they check you risk profile, risk-taker or not. From there, they recommend to invest in aggressive fund (equity) or less aggressive (like bond or money market) or mixture of both. They advocate long term investment and dollar cost averaging.

But the problem with the above is : a) investors are at the mercy of the market, i.e. even after long term (very subjective) when one needs the money and the market is depressed, either you have little return or negative return. b) your return gets diluted due to diversification.

QuaSyLaTic Approach

This QuaSyLaTic has different strategy to help himself and those interested to grow the money.

Very simply:

a)      Never invest in the equity if market is not utterly depressed, i.e. very low low price. Worse still, avoid the market totally when it is hot (like current fever). Choose a steady growth bond fund (8-12% return, which will improve cashflow tremendously as per above projection) for consistently performance. Monitor CLOSELY to pull out and park the money back to bank / EPF if there is instability like last year August bond “crush”. Then come back to bond again after stabilization.

b)      Wait till the market is totally depressed, switch from bond to equity and monitor closely to exit as market saturates. Back to bond or bank again.

Although it sounds simple, it does take a lot of homework, research and analysis with constant monitoring.

It maybe trilling to invest in equity when market is hot, with small amount (as investors who do not do homework would not dare to invest in large stake) and see the money grows daily when there are more hot news.

There are two dis-advantages : a) even if the investor pulls out in good timing before the hot market is over, the quantum of gain is little as he did not invest with big capital. b) if he does not do good analysis and homework and the hot market bubble burst, he is either back to square one or suffer large losses.

Well, it is your own decision on how you want to manage your money and future.


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