Entering Future Special Expenditures
What is the correct way to enter a FUTURE special expenditure that will be inflating at a rate higher than the base inflation rate from now until the year I have to start paying it? It appears that I can change the inflation rate in the Assumptions folder for newly entered data without affecting the calculations of previously entered data. So do I just change the inflation rate in the Assumptions folder to whatever I want, enter and calculate my data, and then change the inflation rate back to what is was? For a CURRENT special expenditure I know I can just use the Grow button.
I suppose what is confusing me is that I get different results in this simple example:
(1) Set the inflation rate to 7% in the Assumptions folder. Then in the Special Expenditures folder, enter the starting year as 2018 and the amount $2,000 (in today’s dollars). The result is $3,934 future dollars in 2018.
(2) Set the inflation rate to 3% in the Assumptions folder. Then in the Special Expenditures folder, enter the starting year as 2008, the amount $2,000 (in today’s dollars), continuing for 1 year. Highlight the entry and grow it at 4% for 10 years. The result is $3,978 future dollars in 2018 ($2,960 today’s dollars).
I must have missed this math class in college (or was it high school?).
Rick
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Hi, This is from Larry. Here's your question:
What is the correct way to enter a FUTURE special expenditure that will be inflating at a rate higher than the base inflation rate from now until the year I have to start paying it?
Here's my answer. Just calculate with a hand calculator the nominal (number of dollars) you'll need to pay at the future date. For example, if it's a $1000 growing at a 7 percent rate for 10 years, the amount you'll need to pay, in dollars, is $1000 times 1.07 raised to the power 10. You just enter this amount as a special expenditure. In so doing, you tell the program that the amouint is in dollars. best, Larry