Stress Testing?

If you are planning your finances through a cash flow model - trying to predict the future - you should be able to understand how your finances shape up in a downturn. This can be termed stress testing – could you cope if your capital ran out completely or could manage on a lower income during the downturn to ensure that the capital is not depleted by too much? It is important to bring potential changes in inflation into the ‘stress test’ and to build in a sufficient buffer to cover unexpected expenditure.

There could be a number of scenarios that will be considered as part of a stress test.

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