Lesson 1.8: Optimizing Expenditure

Make sure that the Optimize button is not in the down position. Initially, the Expenditure and Optimize buttons on the toolbar should look like this:
Click New Accounts File on the File menu. This will create a new account with all amounts set to zero.
Initially we only want see the effects over one year so click "1" in the Years dropdown list.
Ensure that the Salary button is in the down position, so that the text box is editable, and the salary figure is included in all calculations.
Enter $10,000 in the Salary text box. Press the ENTER key to confirm.
Notice that the Expenditure row in the table is still set to zero.
Click the Optimize button .
The Optimize 'bulb' will light up, and the Expenditure button will show a small light bulb, like this:
Now look at the Expenditure row in the table again. The row now reads Optimized Expenditure, and we can see that the Optimize function has set Expenditure to $10,000.
Note: The program optimizes Expenditure by setting it to a value which will allow the Primary account, and the Secondary account, if they are linked, to maintain their original values - that is, the value of their balances in the first year. In other words, it attempts to set a value for Expenditure which is sustainable over time.
So in this simplest of examples, where the user has no investments, is earning no interest, and keeps no funds in hand to pay future expenses, then the full value of the salary is available for expenditure.
If we complicate the example by introducing 25% tax:
1. Click on the Tax/Inflation tab, under the main Account Details tab to reach the tax editing control.
2. Make sure the Tax button is in the down position.
3. Enter a tax rate of 25% and press the ENTER key.
then the Optimized Expenditure instantly reflects this, by reducing to $7,500.
Now lets improve our opening position by starting with $100,000 in the Primary account:
1. Click on the Income tab to reach the Initial Funds text box.
2. Enter a figure of 100,000 and press the ENTER key.
3. Click the lowest of the small square buttons in the Split control to place all the funds into the Primary account.
Surprisingly our optimized expenditure remains at $7,500? What's going on? Well, remember that at step 2 we reduced all amounts to zero, and that included the interest rate for the Primary account. So at present this account is not producing any extra income. Lets fix that.
Either by typing in a value, or using the clickspin control, increase the interest rate for the Primary account to 5%.
Now look at the Optimized Expenditure figure in the table. It has increased to $11,250 because the Primary account is now generating extra income.
Lets increase the number of years to 20: Click on the Years dropdown box - on the Quick Toolbar - and then click on 20. Notice in the lower chart that the value of the Primary account balance has been maintained at $100,000 throughout the period. Each year the interest has been deducted from the balance and made available for the Optimized Expenditure - but the balance has been maintained throughout at its opening value.
Finally, adjust some of the other controls to see how they affect the optimized expenditure value. The table and charts will reflect your changes and graphically illustrate, and illuminate, the relative importance of the various financial components.