Personal Finance Forecast

  (  by Vinny Graphics )

 

Help File Table of Contents

 

1-  Introduction

2-  File

3-  Setup

4-  Graph Page

5-  Plan Page

6-  Registration

7-  Window

8-  Personal Data

9-  Assets

10-Assets Home

11-Income

12-Taxes

13-Expenses

14-Assumptions

15-Home Expense

16-Medical Expense

17-Communication Expense

18-Entertainment Expense

19-Food and Personal Expense

20-Special Events Expense

21-Automobile Expense

22-Education Expense

23-Technical Details

24-Hints

25-Sample Plans

 

 

 

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1-INTRODUCTION

The Personal Finance Forecast software allows financial analysis in the privacy of your own home. The package is driven by a financial math model that forecasts annual cash flow and net worth. It can be used for all age groups and should appeal to both professional and non-professional planners. Data entry is made easy by instructions on each page. Information can be entered in any order and intermediate results can be obtained at any time. You can modify the major financial assumptions if you wish. The model can help answer questions such as:

 

a- When should I retire?

b- Should I buy a home?

c- How often should I replace my cars?

d- Can I afford to pay for college?

e- Where am I spending my money?

f- What changes should I make to retire early?

g- Can I afford to give a major gift to my children?

h- Will I run out of money? When?

 

PERSONAL PLANS

Enter a snap shot of your current financial situation and your future plans using the [Setup] menu item. The data you enter creates a personal financial plan that can be saved as a plan [.plan] file. The math model uses this data to forecast expenses, income and net worth as a function of user age. Estimates include the effects of inflation, home purchases, salary growth, pensions, social security, investment growth, automobile purchases, educational expenses, income taxes and tax deferred distributions just to mention a few.

 

GETTING STARTED

Use [File|New] to start a new plan. A little advice before you dive in. The math model is only as good as the data it is given. You will be asked to input your current financial status and forecast your future choices. Each data entry page has its own instruction memo. It is a good idea to read it before you enter the data.

 

SAMPLE PLANS

Use the sample plans to get a feel for how the program works. You can open any sample plan by using [File|Open]. The first time the program is used it opens with the sample file "Double.plan". After that it opens with the last plan selected. Section (25) of this help file tells the sample stories.

 

HELP SECTIONS

Personal Finance Forecast help file [vplan.hlp] has (25) sections. You can click on any section title in the table of contents or you can page through the help file using the “<<” and “>>” menu items above. You can use the [Contents] menu item above to return to the table of contents. You can also use the [Index] menu item above to find most major topics and locate financial parameter definitions.

 

Section (1) is this "Introduction".

Sections (2) through (22) cover the menu items and pages.

Section (23) "Technical Details" covers inner workings.

Section (24) "Hints" offers helpful suggestions

Section (25) "Sample Plans" explains how to interpret the samples.

 

 

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2-FILE MENU

The file menu [File|New] item starts a new plan. The [File|Open] item opens an old plan. The [File|Save] item saves the current data in a plan file. All plan files have [.plan] extensions. The install program registers the [.plan] extension with [vplan.exe] which is the main executable program file. When you exit the program it will ask you if you would like to save and rename the data. The demonstration version of the software does not provide for data saving.

 

SAVE BITMAP

Use [File|Save Bitmap] on the graph page to save the graph as a bitmap file.  You can change the size of the bitmap by changing the size of the screen display.

 

PRINT GRAPH

Use [File|Print Graph] on the graph page to print a hard copy of the graph. 

 

PRINT PLAN

Use [File|Print Plan] on the plan page to print a hard copy of the plan numeric data.

 

 

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3-SETUP

Use the setup menu item to select the financial data entry page. Data can be entered in any order and at any time. All results are shown on the graph and plan pages. Check your progress from time to time by clicking [Graph] or [Plan]. The setup, graph, and plan menu items are not available on sub-pages. On these sub-pages click return or the [X] in the upper right corner to return to the pervious page and then you can click [Setup] or [Graph] or [Plan].

 

 

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4-GRAPH PAGE

The [Graph] menu item displays the graph page. The graph page is one of the two primary outputs of the program The other output is the plan page. The outputs are read only pages.  Both the graph and the plan pages have a [Dollar] menu item. Click the [Dollar] menu item to toggle the dollar output between (Inflation Adjusted) and (Current Year) dollars. The inflation adjusted dollars are also called then year dollars. [Dollar] menu selections made on either page are true for both. Switching to (Current Year) dollars makes the graph easier to read and to understand.

 

FINANCIAL PARAMETER SELECTION

At the bottom of the graph there are small check boxes next to each graph parameter. Click these boxes to remove or display each parameter. You can choose any combination you wish to view. The right and left hand scales will adjust automatically.

 

SCALES

All graph page dollars are given in thousands. The graph  has both a left and a right hand scale. The left hand scale is for assets and the right hand scale is for annual cash flow. See the parameter definitions below. 

 

 

GRAPH  PAGE  PARAMETER   DEFINITIONS:

 

ASSETS

There are four asset parameters. They are net worth, total investments, net property value and other debt.

 

NET WORTH

    The total of all assets minus all debt.

INVESTMENTS

    The sum of tax deferred and taxable investments.

PROPERTY NET

    The market value of all property minus mortgage balance.

OTHER DEBT

    The sum of all outstanding debt except mortgage balance.

 

ANNUAL CASH FLOW

There are four annual cash flow parameters. They are expenses, income, taxes and distribution.

 

EXPENSES

    The sum of all expenses.

INCOME

    The sum of all taxable income including distributions.

TAXES

    Sum of  federal , state and city income taxes, FICA  and property taxes.

DISTRIBUTIONS

    Taxable income from tax deferred accounts

 

The graph page combines six of the plan page parameters into three.

 

    GRAPH                PLAN               PLAN

Investment     = Tax Deferred + Taxable Invest

Property Net  = Property – Mortgage Balance

Taxes              = Income Taxes + Property Tax

 

There are five financial parameters that appear on both the graph and the plan pages. They are Net Worth, Other Debt, Expenses, Income and Distributions.

 

 

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5-PLAN PAGE

The plan page is a read only output page. The dollar values on it can be toggled between (Inflation Adjusted) and (Current Year) dollars using the [Dollar] menu item.

 

The plan spread sheet has 15 columns divided into in three groups. The groups are assets, expenses and income.

 

PLAN  PAGE  PARAMETER  DEFINITIONS:

 

ASSETS

NET WORTH

    The total of all assets minus all debt.

TAX DEFERRED

    The sum of all tax deferred investments.

TAXABLE INVEST

    The sum of all taxable investments.

PROPERTY

    The  market value of all property.

MORTGAGE BALANCE

    Mortgage balance.

OTHER DEBT

    The sum of all outstanding debt except mortgage balance.

 

EXPENSES

EXPENSES

    The sum of all expenses.

INCOME TAXES

    The sum of FICA, federal, local income taxes.

PROPERTY TAX

    The real estate property tax.

 

INCOME

INCOME

    The sum of all taxable income including distributions.

SALARIES

    The sum of all salary incomes.

PENSIONS

    The sum of all private pension incomes.

SOCIAL SECURITY

    The sum of social security income.

INVEST RETURN

    The income from taxable investments.

DISTRIBUTIONS

    Taxable income from tax deferred accounts

 

The graph page combines six of the plan page parameters into three.

 

    GRAPH                PLAN               PLAN

Investment     = Tax Deferred + Taxable Invest

Property Net  = Property – Mortgage Balance

Taxes              = Income Taxes + Property Tax

 

There are five financial parameters that appear on both the graph and the plan pages. They are Net Worth, Other Debt, Expenses, Income and Distributions.

 

COPY CELLS

Use the [Copy] menu item on the plan page to copy groups of cells or the whole spread sheet to other applications such as Microsoft Excel.

 

 

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6-REGISTRATION

The registration page explains how to register the Personal Finance Forecast program. At the top of the page there is a program serial number. Make sure you include the serial number when you mail in your registration fee.

 

 

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7-WINDOW

The [Window] menu item has three sub-menu items:

 

Help        - This help file.

Register - The registration page.

About      - Contains information about the author.

 

 

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8-PERSONAL DATA

The personal page accepts inputs of names and ages. It is important to enter all ages that apply. The ages are used to set the time frames for various incomes and expenses. If you enter an income on the income page and its time frame is missing you will be referred back to the personal page.

 

 

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9-ASSETS

Major financial assets are entered on the assets page. Investments are divided into to two categories tax deferred and taxable. The tax deferred include 401k plans and IRAs. Any outstanding current debts should also be entered on this page. Do not include property mortgages in the debt item. Mortgages are covered on the "Assets Home" page. Click the [Home Status/Assets] button to open the assets home page. It is important to fill in your home status even if you do not own a home.

 

 

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10-ASSETS HOME

The assets home page establishes your home ownership plans and your current home ownership status. You can select one of five status radio buttons:

 

RENT

    You currently rent your home and have no plans to buy.

OWN

    You currently own your home and have no plans to sell.

RENT BUT EXPECT TO OWN

    You currently rent but expect to buy.

OWN BUT EXPECT TO SELL AND BUY AGAIN

    You currently own but expect to sell and buy again.

OWN BUT EXPECT TO RENT

    You currently own but expect to sell and then rent.

 

 

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11-INCOME

The [Setup|Income] page accepts inputs of your current and expected incomes. You will be asked to enter salaries current and future, tax deferred saving contributions, private pensions and social security income. The time frames for these incomes are covered on the personal page.

 

 

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12-TAXES

The [Setup|Taxes] page covers payroll and income taxes. The FICA taxes are computed automatically. You will be asked to enter your current year federal, state and city income taxes. The model estimates future year federal income taxes using the 2004 federal income tax structure as a base with index and limit adjustments for future year  inflation. Future state and city income taxes are estimated by taking the ratio of the current year entries to current year federal tax entries and assuming the ratios do not change in future years.

 

 

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13-EXPENSES

The [Setup|Expenses] menu item opens the expense summary page. This page shows the sub-totals for all expense items for the current year. The current expense data is used to estimate future expenses accounting for inflation, changes in taxes and retirement status. You can click on the sub-category expense buttons to open detail expense item pages. You should fill in all items on expense sub pages that apply.

 

 

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14-ASSUMPTIONS

The [Setup|Assumptions] menu item opens the assumption page. You can modify any of the assumptions listed. If you wish to return to the original values click the [Setup|Assumptions|Default] menu item. Future projections of inflation, interest rates and investment returns is a risky business at best. This page also has two very important personal financial forecasts:

 

SALARY REAL GROWTH

The salary real growth rate is the yearly increase in your salary above inflation. This item defines the financial quality of your career. If you choose zero for salary real growth, you expect your salary will just keep up with inflation. If you use 1.00 percent, you have a good career and expect you salary to grow 35 percent above inflation in the next 30 years. If you choose 0.35 percent, you have a fair career and expect your salary to grow 10 percent above inflation in the next 30 years. You can choose higher or lower rates or even a negative rate if you expect your salary will not keep up with inflation.

 

RETIREMENT EXPENSE REDUCTION

Many people find that their expenses decrease after they retire. To account for this, the model assumes a 10 percent reduction in discretionary expenses after retirement. This reduction is not applied to utility payments, insurance payments, medical expenses, taxes, rents, mortgage or debt payments. Depending on your circumstances and plans you may want to change the percent reduction. If you are already retired the reduction is not applied.

 

 

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15-HOME EXPENSES

The home expenses button on the expense summary page opens the home expense page. Typical home expense items are entered on this page. If you own a home, the mortgage and real estate taxes are transferred automatically from the assets home status page. If you rent then the rent is transferred. You should fill in all other home expense items that apply. If you buy a home the model adjusts your home expenses accordingly.

 

 

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16-MEDICAL EXPENSES

The medical expenses button on the expense summary page opens the medical expense page. Medical expenses are hard to forecast. The model assumes that your medical expenses will grow with inflation but does not anticipate any extraordinary items. You may want to include a contingency here or on the special events and other page.

 

 

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17-COMMUNICATIONS EXPENSES

The communication expense button on the expense summary page opens the communication expense page. Typical communication expense items are entered on this page.

 

 

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18-ENTERTAINMENT EXPENSES

The entertainment and gift expense button on the expense summary page opens the entertainment and gift expense page. Typical entertainment and gift expense items are entered on this page.

 

 

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19-FOOD AND PERSONAL EXPENSES

The food and personal expense button on the expense summary page opens the food and personal expense page. Typical food and personal expense items are entered on this page.

 

 

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20-SPECIAL EVENTS EXPENSE

The special events and other expense button on the expense summary page opens the special events and other expense page. Use this page to enter expenses not already covered in other items on the expense summary page. You will be able to type in your own titles for these expenses. There are two groups of five items. The first group is for one time events such as a marriage or a trip around the world. The second group is for activities that recur each year.

 

 

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21-AUTOMOBILE EXPENSES

The automobile expense button on the expense summary page opens the automobile expense page. This page provides for all automobile expenses. The first three items cover  maintenance, insurance and fuel costs. The net replacement cost for three cars can be entered along with the replacement time frames. The model assumes you pay cash for your cars if it is available. If cash is not available the replacement cost is transferred to annual cash flow short fall. The short fall financing is covered in the technical details section below.

 

 

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22-EDUCATION EXPENSES

The education expense button on the expense summary page opens the education expense page. If you expect to have educational expenses for yourself or others this year or in the future use this page to enter the time frames and cost data. The page provides for three people. You will be able to enter current or future out of pocket educational expenses. If you plan on making payments on FUTURE student loans use this page to record the loan details. Do not enter existing student loans on this page. If you are already making payments on a past student loan enter the loan details as part of the current debt item on the assets page. The balances on student loans are displayed as part of the other debt item on the graph and plan page.

 

 

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23-TECHNICAL DETAILS

 

HOME PURCHASE

If you purchase a home the model adjusts your home expenses accordingly. If you are moving from a rental it increases you home expenses by 30 percent. If you are trading up or down it ratios the home expenses according to the market values of the two homes.

 

HOME MARKET VALUE

The model computes the market value of owned homes and homes to be purchased by using the inflation rate and the real estate projected REAL growth rate taken from the assumptions page. You can change these values if you wish.

 

CURRENT DEBT

You may have several outstanding loans. To keep things simple the model lumps them all into current debt on the assets page. This debt is displayed as part of the other debt item on the graph and plan page. You will be asked to enter the term of the largest current debt. This term will be used for all current debts except future student loans. In future years the debt may be revised by the model as result of annual cash flow short falls.  See future annual cash flow short falls below. 

 

FUTURE ANNUAL CASH SHORT FALLS

In future years if your expenses exceed your income and your assets can not cover the short fall the model may refinance your debt. Before taking on debt, annual cash short falls are first taken from taxable investments and then from home equity if you are under 60 years old at the time. If you are older, then tax deferred investments are used before home equity. Home equity loans are restricted such that equity does not fall below 30 percent of home market value at the time.

 

FUTURE STUDENT LOANS

Future student loans are paid off in the time frames entered on the education expense page. The balances on these loans are displayed as part of the other debt item on the graph and plan page.

 

FUTURE SALARIES

The salary real growth rate on the assumptions page defines the financial quality of your career. If you choose zero for salary the real growth, you expect your salary will just keep up with inflation. If you use 1.00 percent, you have a good career and expect you salary to grow 35 percent above inflation in the next 30 years. If you choose 0.35 percent, you have a fair career and expect your salary to grow 10 percent above inflation in the next 30 years. You can choose higher or lower rates or even a negative rate if you expect your salary will not keep up with inflation.

 

FUTURE PENSIONS

The model first computes your starting pension by using the inflation rate to get from current dollars to the pension start year. For subsequent years it uses the pension COLA.

 

INCOME TAX

Except for the current year the model estimates federal income tax. For the current year the model uses the value entered on the taxes page. The current calendar year entered on the assumptions page is used to set the federal income tax inflation adjustment starting year. The model assumes that the 2004 federal income tax structure remains unchanged except for index and limit adjustments for future year inflation. The model assumes slightly more then the standard deduction for future federal income taxes.  If the mortgage interest plus the real estate taxes exceed the standard deduction then that sum is used instead. FICA taxes are estimated using salaries corrected for inflation and FICA limits adjusted for inflation. Future state and city income taxes are estimated by taking the ratio of the current year entries to current year federal tax entries and assuming the ratios do not change in future years.

 

 

 

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24-HINTS

 

HELP

You can strike the [F1] key at any time to access context sensitive help. This system brings you to the applicable section of this help file.

 

a- Click on the help menu item [Index] above for links to program parameters.

b- Click on the help menu item [Contents] above to switch to the  table of contents.

c- Click on any section title in the help table of contents to link to it.

b- Click on the help menu items “<<” and “>>” to page through the help file.

 

RE-SIZING PAGES

You can use the normal Microsoft  Windows features to resize the graph page, the plan page and the help file.  The data input forms can not be resized.

 

MORE THEN ONE PLAN AT A TIME

You may open multiple copies of the program. For example if want to compare say plan A with plan B. First click on plan A  and move it to a new location on the screen. Second click on plan B. You now  have both plan A and plan B running side by side.

 

You may also open two copies of the same plan. For example you might want to view the graph and plan pages of the same plan side by side. CAUTION while doing this, any changes  you make in one copy will NOT be reflected in the other.  To be safe it is suggested that you use this same plan multi-copy capability only for viewing.

 

DOLLARS

When reviewing graphs it is usually better to set [Dollars] to (Current Year) dollars. This tends to expend the annual cash flow scale. It is also a good idea to use current year dollars when reviewing plan data because it makes the numbers more recognizable. Remember that ALL dollar items entered by you should also be in (Current Year) dollars.

 

GRAPH  PARAMETER  CHECK  BOXES

You can hide or display any of the graph parameters by clicking on the check boxes next to them. Use this feature to gain a better understanding of individual parameters. Choose any combination you wish to view. The scale values will adjust automatically.

 

 

 

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25-SAMPLE PLANS

There are six sample plans in the zip package. You can open these plans by using [File|Open] on the graph or plan page. You may want to run two copies of Personal Finance Forecast at the same time. You can keep this copy open and open a second copy to look at the graph and plan pages as you read the sample descriptions.

 

DOUBLE

The file Double.plan contains a plan for two people, Jim and Fran. Between them they have salaries totaling $105,000 per year. They own their own home with a current market value of $325,000 and have a $250,000 mortgage. They expect to trade up in about 6 years when Jim is 40. Their current income exceeds their current expenses by about $25,000 and they are putting $9,500 a year into tax deferred savings. They are in good shape! You can see the planned purchase of the $650,000 home on both the graph and the plan page. They expect to take out a $450,000 mortgage. They will use the profit from the sale of their old home and some of their taxable saving to cover the $200,000 down payment. You can see the drop in their taxable investments on the plan page along with the increase in their expenses including an increase in real estate taxes. These are easier to see if you use current dollars. Jim wants to retire at 55 but will not be able to collect social security until he is 62. On the graph page, if you uncheck the assets scale and use current dollars you will be able to see that their combined income (the light green squares) falls below their expenses (the red pyramid) between age 55 and age 60. At 60 their tax deferred saving (the light blue diamonds) becomes available. At age 71 you can see the mandatory tax deferred investment distribution phase in. The small red peaks are caused by car replacement costs and at age 65 by a $20,000 trip around the world.

 

MARRIED

Mike and Lois have 3 children. Lois stays at home to care for them. John has a good career and is currently earning $110,000 a year. They are concerned because they want to send all 3 of their children to college. They own their home with a current market value of $500,000 and a mortgage balance of $350,000. They have decided to pay for part of the college expense out of pocket and take out student loans for the rest. The plan tells them that in their late sixties their investment cash will run out. To solve this they will sell their home, at that point, and trade down. This all works out very well. As an exercise after you open Married.plan, click on [Setup|Assets|Home Status/Assets] and switch home status radio button from  the "Own but expect to sell and buy again" to just "Own". You will then see the cash flow problem on the graph and the plan pages.

 

HIGHER

John and Judy are a married couple and are doing very well financially. Their combined income is currently $700,000 per year. Their expenses are high but they see no financial problems during their retirement. I think they should take a closer look at their cash situation between age 85 and 90. They will be property rich and cash poor.

 

LOWER

Susanne and Andy rent their home and expect to stay there. They have a combined income of $45,000 a year and live modestly. They have one child to send to college. You can see the college expense and the student loan on the graph page. Display in current dollars. It is interesting to note that because they do not own property their net worth is equal to their investments. The net worth graph is covered by the investment graph except when there is debt. To get a full picture you should study both the graph and the plan pages. What is causing the increase is tax deferred distributions between ages 81 to 90? Why are they paying income tax at age 82? Look at the plan page for the answers.

 

SINGLE1

Jane is 25 and lives alone in an apartment house. She expects to buy a home in about 10 years. Her current income is $55,000. She is saving for a down payment on a house but will have to take out a second mortgage in addition. You can see on the plan page that at age 35 her taxable investment goes to zero and she takes on debt in addition to the mortgage.

 

SINGLE2

Tom is single and currently earns $80,000 a year. His problem is he spends it all and then some. By age 71 his net worth will be ZERO unless he takes corrective action. He has several choices. He can try to increase his income or he can try to reduce his expenses. On the income side he can retire later, change his career or get an additional job. If he retires later at 65 instead of 60 he could extend his liquidity by about 10 years to age 81.  On the expense side he would need a reduction of 8% in order to achieve the same effect.