Why do the Household Balance Sheet and the Cash Flow Planner sometime give conflicting results about my clients’ ability to fund their goals?

The Household Balance Sheet and Cash Flow Planner are fundamentally two different financial models.

The Household Balance Sheet is a snapshot of the household’s overall financial situation at a particular moment in time. Future goals are represented in present value terms so that they can be compared to the current value of a household’s financial resources to see if the household has sufficient resources in today’s dollars to cover the cost of its goals. Conversely, the Cash Flow Planner projects future annual cash flows needed to fund a household’s goals, taking into consideration annual income and investment returns on account balances, as well as taxes and fees on account withdrawals.

Both the Household Balance Sheet and the Cash Flow Planner are designed to provide separate and unique insights into whether a household can afford its goals, and how the household might pay for its goals over time. As a result, sometimes you may see conflicting results. For example, the Household Balance Sheet may indicate that a household can afford its goals over its lifetime. However, due to a large near-term expenditure, the household may not accumulate the necessary funds in time to pay for its goals. In this instance, the Cash Flow Planner will indicate that the household will have a deficit in that year.