(
by Vinny Graphics )
Help
File Table of Contents
1- Introduction
2- File
3- Setup
4- Graph Page
5- Plan Page
6- Registration
7- Window
9- Assets
10-Assets Home
11-Income
12-Taxes
13-Expenses
14-Assumptions
15-Home Expense
24-Hints
25-Sample Plans
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.
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.
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].
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.