Budget Planner Help Examples - Table of Contents Index
Budget Planner Icon

Example 2

Predicting inflated value and planning for a major expense

This example shows how to plan for the purchase of a $15,000 car two years in the future.

How To: Predict an inflated value
  1. Create a new plan using the File > New menu command.
  2. Set up the basic plan fields. This shows a savings account with a $2000 balance, and an additional deposit of $200 per month.
    1. For the plan Name enter "New Car".
    2. For the plan Description enter "My plan to purchase a new car."
    3. Leave the plan starting date at today.
    4. Enter $2000.00 in the plan Amount field.
    5. Enter $200.00 in the plan Monthly field.
    6. Leave the Months field at 24 and the interest at 4.5% for this example.
  3. Click the New button. This event will be the purchase of a car.
    1. Change the event date to be two years from today.
    2. Enter the amount of the expense, thas is $15,000, in the Amount field as a negative number.
    3. Enter 1 for the event Months. This represents a one time purchase, or a one month event.
    4. Enter 0% in the Interest field.
    5. Enter 3% as the assumed inflation rate.
    6. For the event Description enter "Buy new car."

In the event box, notice that an inflated value of $15,913.50 was computed for the original $15,000 car purchase. This was automatically calculated from the 3% inflation rate entered in step 3e above.

Clicking the low point on the graph line shows that we will be short about $8,700. The question now is what can we do about this? There are a number of things that we can try. Maybe we can buy the car in 3 years instead of 2; click the event symbol in the graph to make it the current event and change the event date to 3 years from today. Notice that the event moved to the right, and clicking on the low point of the graph line shows we are now about $8,900 short. What happened? One thing is the inflated value increased to $16,390.90. Notice the flat section between 2 years and 3 years out? Originally we were planning on buying the car in 2 years so lets change the 24 months in the plan section to 36 since we will continue to add the $200 for the extra year. Now clicking the low point in the plan shows that we are about $6,400 short. Better but we still can't buy the car. What to do?

Can we save more money per month? Maybe we can manage an extra $50 per month; change the $200 per month in the plan area to $250. This changes the graph and clicking on the low point shows us that we are now only about $4,500 short.

Maybe we will have a loan paid off 2 years from now, if so, then the amount of money we have been paying to that loan can be saved for the car. Lets see how that will work. The amount of the loan payment is $212.50 per month. Lets create a new event. Click the New button. Change the event date to 2 years from today and enter $212.50 in the Monthly field. Leave the Months field at 12 the set the interest at 4.5 and the inflation at 0. Enter an event Description of "Loan paid off". Better, the amount we are short is now only about $2000.

Notice that the line after the event of purchasing the car is flat. Why? We have the original amount we are saving ($250) set at 36 months. Will we continue to save that amount? We have the amount of $212.50 for the old loan payment set for 12 months, will that amount continue to be saved? If the answers are yes then lets change the original 36 months in the plan to 48. Notice that the graph changes. Click on the graph to select the loan event (the first event marker). This will place that event in the event box. Change the 12 months to 24 notice the graph again changes.

It looks like the graph line crosses the $0.00 line in about an additional 4 months. We may be able to buy that car in 3 years and 4 months. At this point you can try a few other things. Maybe you will do better with the interest rates. Maybe the inflation rate may change (this may be good or bad for you). Maybe you can save another $10 per month. Maybe you can buy a slightly less expensive model of car, etc. etc.

In this example it starts to become apparent how the planner can be used to play "What If". It is this process that is so important to budgeting. You must be able to see what is possible and, more importantly, what is not possible.

When done, if you have registered Budget Planner you can save the plan in a file for future use. We will start with this plan in the next example.

Move on to example 3.