How Microsoft^® Money Predicts
Your Financial Future

Contributed by Jay Schroyer

Microsoft’s Money finance management program is one of the most comprehensive financial software packages available today. Available in a deluxe, premium, home and business, and essentials version, Money can provide users with the “big picture” of their finances without all the aggravation and confusion that usually accompanies major number crunching and fiscal planning.

Money allows you to manage multiple accounts, pay your bills, track your spending, plan for the future through savings and investments, guides you through your taxes, and can even provide support for small businesses. Although it is powerful software, Money doesn’t require a state-of-the-art machine to run its integrated program. Even users with only Windows® 98, a Pentium® 166 processor, 32 MB of RAM, and a modem can operate Money on their computers.

Another value added feature of Money is that it is constantly updating and changing with the release of new and updated tax laws, so you’ll always know that the program is providing you with the most recent support available.

This article will explain how Microsoft Money is able to predict how much money you’ll have available to you in your lifetime. There is no crystal ball or palm reading option in this Microsoft product, but there is a Lifetime Forecast feature. The Lifetime Forecast function uses information such as your age and then uses it to predict your income, taxes, inflation, living expenses, debt, retirement savings, and investment earnings based on your (and others) historic information in these categories from year to year.

The forecast can be displayed as a graph which will show spending amounts, your short-term and long-term savings, and your retirement savings, but it is always relevant because the day you run the Lifetime Forecast program is the start date for its forecasting. By taking a closer look at one of this program’s essential functions, we can learn how Microsoft Money calculates the information that you put into the Lifetime Forecast function.

Income
Money will take the information that you provide for salary information and plug this into the Lifetime Forecast. The income section can include other household income from a domestic partner. You can also add any additional income that you may earn during the year, for example any type of financial windfall that may come your way.

You can also make adjustments as your work situation changes should you receive a raise or even be laid off for a time. Money calculates your income for the entire year, so even if you start the Lifetime Forecast in October, it will still predict the salary for a twelve-month cycle.

Money will also adjust your salary by a predicted inflation rate to account for cost of living changes that may occur over your lifetime.

Taxes
Money will automatically take out the tax rate that you have specified in the tax options for the program. The program will also adjust for pre-tax items like 401k contributions, charitable donations, and health insurance. Since Money is constantly updated with current tax codes, unless you have specified a tax rate that is far from your actual tax, the calculations should be very accurate.

Living Expenses
Money will calculate how much it costs your household to operate each month. These include all sorts of expenditures like groceries, utilities, and can even include one-time event bills like major car repair or appliance replacement. By finding an average monthly expense, Money multiplies this amount by twelve and averages a yearly cost of living expenses.

You can also increase spending options such as entertainment and vacation spending to account for any seasonal fluctuations in your monthly living expenses. Again, like your salary data, these items will also be adjusted for inflation.

Debt
Since you can enter all of your debt information into Money for payment tracking, Money can also access this information for the Lifetime Forecast. Money will forecast how long it will take you to pay off these debts and how much interest you’ll end up paying in the end. All of these amounts (interest and monthly payments) will be subtracted from the positive income coming in.

It’s important to note that the Lifetime Forecast will assume that credit card balances are paid off in a lump sum, so your numbers may seem a little high when calculating in credit card debt.

Retirement
Retirement savings are forecasted by multiplying your monthly contribution percentage times the twelve months of the year. Money can also add in special contributions or any additional payments that you may make towards your retirement savings throughout the year and your employer’s contribution is also calculated as well. This section is also affected by inflation and will fluctuate slightly according to Money’s forecast.

Investment
Money will also make predictions about the rate of return on your investments as you have them entered. Money, of course, can’t predict drastic changes in the stock market that can affect your investments, but it can make some logical assumptions and predictions about the average returns for certain types of investments. This will most definitely be affected by inflation.

All of these events are calculated using very simple formulas, but the beauty of Money is that it can bring all of these things together and compare and contrast them giving you the full picture of what is going on in your financial sphere and what might happen in your future.

Although Money is not a difficult program to operate, there are many features that often go unused because users either don’t know about them or are afraid to access them for fear of messing up their files. If you’re ever free to take a Microsoft Money lesson or can find free computer software training online, it couldn’t hurt to expand your knowledge of Money if you already use it to organize your finances and plan your financial future.

Microsoft and Windows are trademarks or registered trademarks of Microsoft Corporation, registered in the U.S. and/or other countries. Pentium is a registered trademark of Intel Corporation in the U.S. and/or other countries.

About the Author:
Jay Schroyer has worked in the client and customer service end of business for over five years in retail, advertising, and printing. He holds a bachelor’s and master’s degree in English writing and communication.