13 · Assumptions, forecasts and testing a decision

They are your guesses, not predictions — and the honest way to use them is to change them and see what survives.

Every projection in the app — the forecast, the projected balance sheets, the retirement drawdown, the Age Pension estimate and every planned purchase — rests on a handful of numbers on the Your assumptions tab: inflation, salary growth, property growth, investment return, cash interest, vehicle depreciation, and how much of your savings is invested rather than held as cash.

None of them touch your budget or your opening balance sheet. They are long-run yearly averages, and everything reruns as you type.

Today’s dollars or future dollars

Every projection screen has this switch, and reading the wrong one is the most common misunderstanding in the whole app.

• Today’s dollars strips inflation out, so figures are comparable with what money buys now. Use this to answer “will we be comfortable?”
• Future dollars shows the actual numbers that will appear on statements. Use this to answer “what will the balance say?”

A $40,000 caravan planned for 2031 costs more than $40,000 when it arrives. That is the same caravan, not a bigger one.

Planning a purchase properly

The Forecast tab lets you plan a car, a caravan, a renovation or any large spend in a chosen year, paid from savings, with a loan, or both. Costs are entered in today’s dollars and rise with inflation to the purchase year. Two consequences surprise people:

• The asset’s later value is the indexed price less depreciation. Vehicles lose a percentage of their remaining value each year, so they never quite reach zero.
• A loan’s balance at the end of its first year is already lower than the price, because a year of repayments has been made.

A purchase spends its own named envelope fund first, then the general savings pool, then a loan — with the repayments coming out of the surplus. Once a loan is paid off, its repayments stop being spent, a linked envelope drops out of planned spending from the following year, and the freed money appears in the annual surplus, ready to be given a new job.

Saved sets, and the stress test

Keep two or three named views of the future — a base case, a cautious one, an optimistic one — and switch between them. Your figures never change; only the assumptions do.

A plan that only works on optimistic numbers is worth knowing about tonight rather than in twenty years. The What if you are wrong? panel compares your settings against a deliberately gloomier set — a lower return and higher inflation — without changing anything. If the plan survives that, you have a real answer rather than a hopeful one.

A note on rates built into the app, as distinct from your assumptions: the tax brackets, Medicare levy and concessional cap on the Income & tax tab, and the pension and health card figures on the Retirement tab, are official figures with fixed expiry dates. Check them before running a cohort or relying on a projection.