Expenses
New expenses are set initially to recur annually from the beginning until the end of the timeline. All stages will be selected by default in the Time panel (as illustrated below). This will be fine for many expenses, which you expect to take effect immediately, and continue until the plan ends (when the last client dies).
Expenses can be easily reset, however, to begin and end at different points in the timeline by selecting different start and end events in the Time panel, via the 'Events' tab. For expenses active at the beginning of the plan, select on the Time panel the Start event (green dot). Select an end event (red dot) to indicate when expenses will end.
Future expenses can be set to begin later, along the timeline, by selecting a future start event (green dot), in the Time panel, via the Events tab. As already indicated, one would select an end event (red dot), to indicate when the expense should cease, as illustrated below:
The Time panel, Events tab, New Event button can also be used to add events to the timeline, if needed, to schedule the future start and end of expenses.
One-Off Expenses
Selecting a single event (green dot) without selecting an end event (red dot) would indicate a single year, one-off expense. Do not over think the semantics of the "Yearly" option. As a one-off expense, it will occur only once. In most cases a one-off expense would be entered in an annual amount. Select Applied: Yearly to indicate that the amount entered is an annual one.
Scheduling Future Changes in Expenses
The Time panel, Events tab, New Event button can also be used to add events to the timeline to schedule future increases or decreases (steps) in expenses.
Future changes to expenses can be scheduled to occur at events on the Property/Assets screen’s Advanced Settings > Step Up / Step Down panel. To be used in stepping, the event must fall within the expense’s timespan.
Enter the full stepped amount. When entering a future steps in expenses, be sure to enter the full, edited amount and not merely the difference between the old expense and new.
Be consistent. If the expense is entered as an annual amount in the main fields on screen, be sure that the adjusted amount you enter on the Step Up / Step Down panel is also an annual amount and vice versa for monthly expense amounts.
If you were to enter an expense initially as a monthly amount and were to switch to an annual amount on the Step Up / Step Down panel, the stepped amount will still be multiplied by twelve, probably yielding some less than desirable results in your client’s cash flow.
There is one additional consideration. Expand the Inflation panel. Here you can edit the inflation rate applied to the expense. This rate can also be altered in the future, if necessary, using steps. Moreover, you will find on this panel Present Value / Future Value settings. These two options determine whether inflation will be applied to the stepped amount.
Present Value is selected by default. This means that the values entered on the Step Up / Step Down panel are in today's terms. For example, a client plans to increase living expenses to £60,000 per annum in retirement. Since the amount is considered to be a present value, in today's terms, inflation will be applied to the £60,000 from the start of the plan until Retirement, when the stepped increase is made, and will continue to inflate thereafter. So the increase to £60,000 will be an increase to an inflated £60,000, which will be a greater amount.
If you want to take inflation out of these future steps, ensuring that the £60,000 will indeed be £60,000 at age 60, only to be inflated thereafter, select instead the Future Value option.
The system default is Present Value because in most cases we believe it safe to assume that people are thinking of amounts in today's terms, but you have the option to treat these future amounts differently.
Schedule Regularly Recurring Lump Sum Expenditures
Regularly recurring lump sum expenditures that occur on something other than an annual schedule – e.g. the purchase of a new car every five years – can be set using a combination of start and end events (or one or more stages) on the Time panel and the special Recurrence setting, in Advanced Settings
To schedule recurring lump sum expenses, first go to the Expense screen’s Time panel. On the Event tab, and select the first year the expense will occur (green dot). If this is to be in the first year of the plan, select the Start event. Select an end event (red dot) to indicate when the recurring expense will no longer be active in the plan.
Note: The Time panel, Events tab, New Event button (bottom-right) can also be used to add events to the timeline, if needed, to schedule the future start and end of expenses.
Next, expand Advanced Settings and select Recurrence. Enter the interval (the number of years) in which the expense will recur. For example, if a car is to be purchased every five years following the first car purchase (the start event), enter a Recurrence Interval (Yrs) of 5 years. Following the first purchase, the expense will recur every five years until the end event. If the end event is less than 5 years after the last regular purchase, the expense would effectively end with the last full interval.
Special Expenses and their Timing
Some expenses are created automatically by the software when certain types of items are entered into a plan. The timing of these expenses will be controlled by the timing of their parent items. For example, if you enter a debt into a plan you will notice, when visiting the Expenses > Basics screen, that a debt payment expenses is shown on screen. This expense was created automatically and is linked to the debt, meaning that when the mortgage is paid off the expense will end.
Debts: When a debt is entered into a plan a debt payment expense will be created automatically to control payments made on the debt. The payment schedule of the debt will control the duration of an unsecured debt – i.e. a debt that is not linked to a property/asset. If the debt is linked to a property/asset, the debt and the debt payment expenses will inherit the timing if the linked property. If the property/asset is sold, proceeds will go first to the payoff of the linked debt.
Debt payment expenses may also end if the debt is scheduled for payoff on the Debt screen's Advanced Settings > Payoff panel, provided funds are indeed available to make the payoff.
Premiums: Expenses are created automatically for the premiums paid on protection policies. Premium payment periods are set on the protection screens.
Savings and Investments: Contributions to pensions, savings and investments are entered and scheduled on the Money Purchase, Savings and Investment screens.
Future Purchases – The future purchase of life funds and discounted gift trusts as well as properties and assets will trigger the creation of a future lump sum payment expense. These expenses are set to occur on the Investments and Property/Assets screens, respectively, by ticking New Purchase and usually selecting a future purchase event on the Time panel, Event tab.
Taxes – Taxes are assessed and charged by the software depending on annual incomes (earnings, dividends, and interest) and realised gains.