How to Advance Plan for Next Year

Budget planning for next year should be done near the end of the current year. But since ESP works on an annual basis, it still does its calculations for the current year as though it's January even though it may be December. If things have changed substantially, the numbers won't reflect reality for this year or the next.

Here's how I dealt with that problem for advance planning against my budget.

1. For simplicity purposes remove as much from the current year as possible. Remove all income and expenses from "Special" for the current year. If you are receiving retirement benefits, make their start date next year. Set the value of retirement accounts to the amounts you expect to start the new year.

2. Set inflation to zero (under "Assumptions"), but change it to x% in the year AFTER next year. This will serve to eliminate the adjustments ESP makes for inflation next year, keeping reports in current year dollars. When ESP actually gets to January it will use current dollars, so forcing that now makes the numbers more realistic.

3. ESP will still be doing calculations for the current year but, since the current year is over, these should be offset to provide a correct starting point for next year. For this purpose, Regular Assets are the key. Simply add, in Special, non-tax income and/or expense for the current year to force Regular Assets for the current year to approximate your actual number (as you expect it to be at the end of the year). This is a bit tricky because, since ESP will re-calculate the current year based on your Special inputs for the same year, the current year numbers will change in a hard-to-predict way. You will probably have to iterate a bit over a few runs, juggling the Special inputs each time to force ESP to come closer to the Regular Assets number you want. But once that is accomplished, you should have a pretty realistic picture overall for next year.

4. The numbers may still not quite reflect reality, depending on which ESP version you are using. For example, the Social Security adjustments for next year will not be accurate until they are incorporated into ESP. The adjustments are announced in October and added to ESP sometime after that, presumably in the November release.

5. The numbers may still not reflect reality, because I may have missed something. Caveat Emptor!

Lynn Grubb