How Money calculates items in the lifetime planner (Part 2 of 3)

This is a document that used to be provided on the Microsoft Money 98 site, but can no longer be found. Much of it is still relevant in more recent versions of Money.

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How are my LIVING EXPENSES calculated?

The annual living expenses amount is calculated each year directly from the top-level budget as follows:

top-level monthly expense budget * 12
+ top-level occasional expense budget
- one-time expenses (future transactions from the Account Register and future one-time bills in the Bills place)
- taxes paid out on salary and other household income

The entire monthly expense budget is applied for the first (current) month even if today's date is the last day of the month. Likewise, the entire month's portion of the additional household income is included for the current month, regardless of today's date.

Debt
The Forecast shows the sum of the payments made to the debt during the year as set up by the Debt Reduction Planner. The Forecast will show credit card debt that you have not included in the Debt Reduction Planner as paid in full on the next due date. For loans that you have not included in the Debt Reduction Planner, the Forecast will use the payment terms as seen in the Payment Terms place for each loan account.

Lump sum payments are made at the end of the Forecast to pay off any outstanding debt.

Events
Many events can change living expenses in the future:

  • Buy a house
  • Change future income
  • Change future living expenses
  • Have a child
  • Pay for future college tuition
  • Receive raise, pay cut, or career change
  • Retire
  • Sell one house to buy another
  • Start working
  • Stop working
  • Support aging parents

In each of these events, you specify how your living expenses will change. There are three choices: stay the same, increase, or decrease. If they increase or decrease, you specify that they change either by a certain amount or by a percentage. The changes apply only to the top-level monthly expense budget.

Many events can add special expenses in the future:

  • Buy a car
  • Buy a house
  • Future vacation
  • Future wedding
  • Have a child
  • Pay for a large future expense
  • Pay for a future college tuition
  • Sell one house to buy another
  • Support aging parents

In most of these events you specify the amount of the expense, how the amount will increase over time, and its frequency. The expenses are shown as occurring on the last day of the specified month. Events with the date in the past are shown occurring on the first day of the Forecast.

Taxes
Tax-deductible interest from loans is not calculated into the Lifetime Forecast.

Inflation
You have the option of viewing the Forecast in Real Dollars (inflated) or Today's Dollars. To change between Real Dollars and Today's Dollars, click Options in the lower-left corner of the Forecast section of the planner. In the box that appears, click the option you want, and then click View.

If you choose Real Dollars, 1/12 of the yearly inflation amount is applied to your living expenses each month. Money 98 multiplies an inflator amount by the living expenses each month. The inflator is initialized to 1 the first month, and in following months it is recalculated by using the following formula:

inflator = inflator * ((1 + inflation rate) ^ (1/12))

If you choose Today's Dollars, living expenses are not adjusted for inflation. Borrowing loan balances and loan payments are reduced by the inflation rate. This includes payments being managed by the Debt Reduction Planner.

How are my RETIREMENT SAVINGS calculated?

Retirement savings contributions are specified per spouse in the Budget. The formula for each spouse's contribution is:

(Monthly contributions * 12) + occasional contributions

Employer contributions are specified per spouse in the Budget. Employer matching contributions take into account the yearly occasional contribution amount. In the first year of the Forecast, all contributions for the current month are included.

Events
Many of the events that you specify in the Goals and Events section of the Planner can change retirement saving contributions in the future:

  • Change future income
  • Change future living expenses
  • Receive raise, pay cut, or career change
  • Retire
  • Start working
  • Stop working

You specify the new saving amount in the event (in the "Adjust your savings plan" page of the New Goal Wizard) and the change takes place in the month specified in the event. You can specify the amount either as percent of income or as a flat amount per year. In the percent of income case, the calculation is taken from the personal income of the person to whom the event applies after the event. The new amount replaces the entire contributions for that person. If the field is blank, the contributions are unchanged.

Investment Gain
Investment Gain is calculated as:

(beginning balance + ending balance) / 2 * rate of return

In the first year the Investment Gain is prorated by multiplying the above gain by ((date of 12/31 - start date of Forecast) /365.25) .

The rate of return is defined in the Savings & Investments place in the Planner. You can specify a rate of return before retirement (first spouse) and another rate of return for after retirement. To change the rate, click the Change Rate button at the bottom of the Savings and Investments screen.

Taxes
Retirement investment gains are not taxed, so no taxes are figured into the Lifetime Forecast for Retirement Savings.

Inflation
If you view the Forecast in Real Dollars, flat amount savings and occasional yearly contributions grow with inflation the same way expenses do. Employer matching and profit sharing contributions rise accordingly. Percentage savings also grow with inflation since they are a percentage of salary.

If you view the Forecast in Today's Dollars, no contributions grow with inflation.

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Page Last Updated: Sat, 29 Oct 2016 13:33:28 GMT

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