The figures that appear on the Cash Flow Tab can be derived from two other tabs:
The Tax Data Tab, and
The Living Expenses Budget Tab
You can also totally override the derived figures.
Basically, the Cash Flow Tab allows you to differentiate between "taxable income" and actual cash flow. Because taxable income and expense write-offs do not always reflect actual cash flow, MasterPlan uses the amounts you enter on this tab to track the differences. You will want to adjust or eliminate any items that do not reflect real cash income or expenses.
For example, if you have entered a capital loss carryforward of $-3,000 on the Tax Data Tab, but if this loss does not affect cash flow for this year, you should zero out the $-3,000 on the Cash Flow Tab.
As with the previous two forms, do not enter cash flow information from assets or liabilities entered in the database. To verify what will be "fed through" from the database, click on the View Database button.
Note: When you fill out the various asset forms, you also can distinguish there between cash flow and taxability.
When MasterPlan displays an amount on this tab that is derived from the amounts on another tab, it displays them in blue. You can tell at a glance if you (or someone else) typed in a number.
For example, assume the bottom row of the clients' Schedule C was $10,000 for year 1 but the cash flow generated from the business was $15,000. You enter $10,000 on the Tax Data Tab. When you click on the Cash Flow Tab, you see the $10,000 displayed there as Net Self-Employment Income on Row 2. Click on the cell, look at the white formula strip above the years, and you will see the formula used by MasterPlan to display the $10,000 from the Tax Data Tab.
Now type $15,000 and tab off the cell. MasterPlan will change the $10,000 from black to $15,000 in blue. When you click on this cell again, you will see the constant $15,000, instead of the formula in the white strip.
To restore the original formula for that cell, click back into the cell and press the F8 key. MasterPlan will display $10,000 again and display the formula in the white strip.
MasterPlan does not know how much your client has had withheld for taxes for the first year of the projection. Enter the amount here that has been withheld. If the client has over-withheld, then MasterPlan will reduce their Annual Surplus Cash by the amount over-withheld. If they have under-withheld, or withheld the exact amount, MasterPlan will not adjust the Annual Surplus Cash.
Often it is most convenient to let MasterPlan calculate the taxes due and not enter anything on this row.
We are not currently using the information on this row, due to customer request. Most of our users would rather have MasterPlan calculate the taxes year by year and not calculate Excess Withholding and Tax Refund amounts.
In MasterPlan, Living Expenses are items that are not included elsewhere in the asset and liabilities forms. Living Expenses normally include food, utilities, phone bills, clothing, etc.
Living Expenses do not include cash flow items for assets and liabilities that you have already entered from the Main Menu Bar in the Portfolio Menu, such as
Contributions to assets, including retirement assets
Payments on loans
Expenses related to rental and residential properties
Premiums on insurance policies
Amounts entered on the first row of Investment Model forms
However, if you are doing a quick worksheet report, you do not need to enter Living Expenses.
The amounts you enter here flow through to the Baseline (Present) and What-If (Proposed) projection and retirement reports.
From the Main Menu Bar, if you click on Reports | Worksheets | Retirement Needs Analysis, you will notice that MasterPlan does not pick up the living expenses from Row 11 on the Tax and Cash Flow Form.
Since the Retirement Needs Analysis Report is meant to be run as a quick, stand-alone report, it does not consult all the information on the database. Instead, it looks at the data entry item Monthly Retirement Needs on the EditClient | Projection Assumptions Tab for the monthly amount of money that the clients want to live on when they retire (in today's dollars).
On the projection reports (such as the Baseline Overview Detailed Report), MasterPlan subtracts all the cash spent or invested by the client from all the cash they receive. Part of the cash spent is called Living Expenses.
Many clients aren't exactly sure where all their money goes; they just know that at the end of the year they have no surplus cash left. We provide the Zero Surplus Cash Checkbox to handle this situation.
In fact, as a planner, you can handle Living Expenses in several different ways so that you can custom tailor the cash outflow for each clients' situation:
You can type the total annual Living Expenses dollar figure on the Cash Flow Tab in Column 1 (the current projection year) on Row 11 (the Living Expenses row) and escalate the figure in Year 2 or beyond.
You can click on EditClient | Projection Assumptions, and check the Zero Surplus Cash Checkbox and not enter any dollar figures on this row.
You can break down the Living Expenses figure into a detailed budget with monthly or annual amounts and enter this detail on the Living Expenses Budget Tab.
You can combine Methods 1 and 2. In that case, if there is a surplus, MasterPlan displays this surplus as Untracked Living Expenses on the projection reports.
You can combine Methods 2 and 3. In this case, MasterPlan will also display any surplus as Untracked Living Expenses on the projection reports.
If there is an annual shortage, MasterPlan will display the shortage, no matter which method you select.