The Dashboard is a unique feature which lets you view, on a year by year basis, your financial situation.
The Dashboard is a simple way to read the value of your:
- Investment Profile (excluding Retirement Funds)
- Value of Home
- Value of Investments
- Value of Retirement Accounts
- Bank (Transaction) Account Balance
- Home and Personal Loans
- Investment Loans
- Income including that allocated to Retirement Income
Behind the simple graphs and tables, Financial Mappers is a complex dynamic calculator. Every time you change one piece of information, the program instantaneously recalculates every aspect of your plan.
Comparing the result of all your investments at the end of every year for the next 30 years is a very complex set of calculations.
Every value you read has been discounted by inflation to give the Present Value, and is rounded to the nearest $1,000 dollars. So, the value of $200, 345 will be displayed as $200k.
As you move the slider from year to year, you are given information on eight key financial facts you need to know. For each dial, the figures start at $0 with the highest value listed on the right-hand side of the dial.
Interest Rate Risk Assessment
We all know that when interest rates rise, loans payments will rise accordingly. You can try to protect yourself by having a fixed interest rate. But this also comes with its limitations. Interest rates may fall, but those with fixed rate loans, cannot benefit from reduced interest rates. There may be limitations and financial penalties if you make additional payments or sell your home and pay out the loan.
The Interest Rate Risk Assessment is a unique calculation in Financial Mappers.
You nominate the interest rate rise you want to consider, say a 2% rise. The program will consider all your home and investment loans, and work out which ones have fixed interest as they will not be effected by the interest rate rise.
Next it will consider how much you have allocated for additional payments for each loan. This is because additional payments can be diverted to making the new compulsory payments and therefore your budget will not be affected. Next the program calculates how much all variable interest rate loans will rise for each of the next 5 years. It will deduct your planned additional payments to calculate what your additional monthly (and annual) payments will cost you.
From here you can examine your budget to see if you can afford these additional payments.
To gather this information you will need to run the Debt Management Report.
Modulators are modelling tools designed for you to change the Interest Rate on loans, Income on investments and Capital Growth on investments and superannuation.
The Modulators in the Modelling Tools include:
- Income Modulators
- Loan Modulators
- Capital Growth Modulators
The modulators are an extremely powerful way to evaluate how your plan would change under various economic conditions. You can choose to use the preset economic cycles, such as Bubble and Periods or rapidly falling or rising interest rates. Or alternatively you can set your own economic cycles using the Custom Modulation option. Finanally, Financial Mappers will return you a Modelling Tools Overview Report as a visual representation of how of your plan over a 10-year cycle.
A Debt Servicing Ratio is the percentage of your after-tax income you are spending to repay all your loans, including personal loans and credit card debts. This is a key indicator for lending institutions when deciding whether or not you can afford a new loan.
Each lending institution will have a different method of calculating their Debt Servicing Ratio and will have different limits to what they consider a point when it’s too high for you to be given the loan. However, they usually will not take into consideration your other costs and thus you may be given a loan when you really can’t afford it.
While banks will have their own uses for Debt Servicing Ratios, you should establish in your own mind how much of your total after-tax income you want to spend on repaying debts. Remember that loans are often very long term commitments and while you may be prepared to limit your spending habits for a short time, making a long-term commitment to allocating a very large portion of your income to loan payments may be fraught with danger.
The following is a sample from the Debt Management Report.
Financial Mappers separates your personal living expenses, tax due on Salary (and allocated Retirement Income), personal loans and credit cards from your Home, Investment and Retirement Accounts.
A powerful feature of Financial Mappers is all figures in the Personal Budget are entered as Present Value so that you do not need to consider likely inflation linked rises in costs.
The Living Expenses are divided into 10 categories and within each category are a set of suggested costs. In this example, you have allocated more to your expenses that available income in the first year. Therefore you would need to adjust the amount allocated to living expenses, decrease the amount of Savings Allocation to Investments or decrease the amount of personal loan payments, where additional payments have been planned.
The aim of Financial Mappers is to give you choices on how you may manage your personal finances.
The single most important thing is to understand how you are currently spending your money and what you may do now to improve your future financial wellbeing. To this end, the Personal Budget allows you to identify what are your ‘Optional Expenses’.
Optional Expenses are those living expenses you would have to forgo if your current income was dramatically reduced because you are unable to work. This may be a result of a serious long term illness or redundancy and unable to quickly reestablish yourself with a similar income producing job.
The trick is to take a serious look at those optional expenses you are currently spending and see if that money can be better applied to something more useful. For example, are you better to take cut lunches to work for a cost of say $10.00 a week or buy your lunch and coffee for $75 a week? What effect will making additional loan payments of say $50 to $65 a week have on your home loan? How much will you have saved by investing the money not spent on lunches in building a portfolio of shares?
In the Debt Management Report, you can nominate a percentage of your ‘Optional Expenses’, you want to allocate to making additional loan payments. The report will then calculate how much interest you will save over the next 5 years.
A common practice with loans is to commence with an Interest Only loan, to reduce the cost of loan repayments until you have a higher salary and greater capacity to repay the loan. Financial Mappers allows you to choose which year you plan on changing from and Interest-only loan to paying off the Principal.
Additional payments can only be made to Principal and Interest Loans. In the example below, additional payments commence at Year 6, when the Principal and Interest Loan commences, and the effects of these payments is clearly visible.
Financial Mappers lets you combine the two sections of the loan so that their total costs are included in one space.
Research shows that the modern consumer will regularly refinance their loans. You may choose to do this to increase the loan amount, or to save money from introductory or reduced interest rate.
Financial Mappers has a unique process to evaluate the overall cost of the loan and whether or not you are in fact saving money when taking into account the cost of changing loans. It does this with the option to refinance the same loan multiple times, while keeping the information for each loan in one place.
The following is an example of a loan which has been refinanced twice, with the loan amount increased with each refinance. Additional payments are made in Loans 2 and 3.
The value of your Financial Mappers is that it will give you a complete financial overview in easy to ready graphs. The following four graphs give you that complete picture.
In the graphs below the plan is a lifetime plan showing the last 15 years of the Savings Phase and the first 15 years of the Retirement Phase.
Salary and Investment Allocation shows what you are earning and how much you are allocating to your Investments.
The Investment Allocation includes home and investment loan expenses, saving for large personal expenses such as a new car, investments, including interest earning (cash) accounts, shares and managed funds together with personal contributions to superannuation.
Drawdown Funding, shows from which assets you intend to withdraw funds for your Retirement Income.
The Bank Account is the Transaction Account through which all your home and investment transactions occur. It is important that this account remains positive, or within your overdraft limit. Otherwise you are spending money you don’t have. If this account is below the Overdraft Limit, you should return to your plan and adjust to ensure you have the funds to pay for your expenses.
Financial Mappers has a unique feature in that it calculates the percentage of Cash and Fixed Interest securities held outside the Retirement Accounts. The figure is then converted to a word description and a column on the graph.
The following is a graph of a Lifetime plan, with 15 years each of savings and retirement. The Debt Servicing Ratio is included on the graph.
Modern theory of financial planning says that risk can be reduced by diversification of assets. It is based on the principle that it is unlikely that all assets will suffer a severe downturn at the same time, thus while one asset may be falling in value another may be rising. Diversification should be across asset classes as well as within each class.
The following is an example of a Lifetime Plan with 15 years each of savings and retirement phases. Note how the investment property is sold in Year 20.
One of the most remarkable features in Financial Mappers is the ability to calculate the results of your plan over the first year and then overlay the results of these four 10-year Economic Cycles.
The Modelling Tools Overview Report will demonstrate how your plan compared with each of the four cycle. While one can never rely on past performance as an indicator of future returns, this will give you an ‘educated guess’ as to whether or not your plan falls within what may be considered a range of outcome from periods where different asset classes performed best over the four cycles.
The following is an example. Firstly the four Economic Cycles are displayed:
The Before and After results are displayed for the value of investments. Note in this example how at the end of the 10-year cycle, the results of the financial plan is midway between the four cycles.