Calculation of projected financial condition requires the consideration of different variables. You have to calculate some obvious, necessary and variable expenses such as food, shelter and healthcare. While calculating financial condition, you have to consider the inflation rate because it is an important factor that can increase the cost of living. You can take the example of dollar as it is more expensive today as compared to past. You have to consider both predictable and variable expenses with the adjustment of inflation to have a good estimation of financial condition. These types of plans can be utilized for longer period of times with some alterations according to your requirements.
Plan for Projected Financial Condition Calculation
In first step, you have to calculate current needs of inventory and costs. Current financial needs will provide you a good framework to get an estimate of future value. Prepare a complete list of current expenses such as groceries, utilities, housing, health care, labor cost, overhead expenses, inventory etc. The amount written for each category can be increase or decrease according to the future circumstances but still it will give you a perfect starting point.
Here is preview of this Projected Financial Condition Analysis Template created using MS Excel,
You have to write future needs and income sources on the basis of future expense like health care requirements that may surely increase in future. You should have ability to generate new sources of income in the future including social security and private pension plans.
Inflation rate has dramatic effect on the rise or fall of your future expenses so you have to pick an inflation rate. You can select an estimated inflation rate from the historical inflation rates provided by Bureau of Labor.
Prepare a record of current financial assets because the amount of cash and assets in your own possession will help you to determine your financial ability to cover your projected financial needs.
You have to approximate your future income to check the growth rate of your income in future. You can take the data of few previous years to have an estimate on its basis. It will help you to increase your income or saving by cutting some cost for the future retirement payments.
Inflation is one of those biggest reasons that can increase or decrease the value of your money. You have to determine some long term goals to save money for the future financial needs. Select a fixed time frame such as 10 years or 20 years to paramount the calculations for your future needs.
You can calculate projected financial condition by multiplying your future needs with annual interest rate. Take the amount of your future needs to multiply it with estimated annual inflation rate. Add this amount to your future needs projection to get an estimated future needs in dollars.
For instance, if your approximate future needs are $50,000 per annum then you have to multiply it with estate inflation rate of 3.5 percent that will be equal to $51,750 for every year and $53,561.25. Continue this process for the calculations of more years.
Subtract the inflation-adjusted predictable operating cost from probable income and savings. If the expenses surpass assets then you have an added monetary need. It is obligatory to find dissimilar ways to augment your pay packet and savings rate to lessen future expenses to cover projected needs.
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