SavingsTab Documentation

The SavingsTab component is designed to manage a client's savings, cash reserves, and how any excess cashflow is allocated. It plays a crucial role in determining how surplus funds are distributed between savings, investments, and debt repayment.

This tab controls:

• Savings Fund: The initial savings amount, the interest rate it earns, and the desired cash reserve.
• Excess Cashflow Allocation: How surplus income is automatically allocated between savings, investment funds, and property debt repayment.
• Annual Contributions: Recurring contributions to savings at specific age ranges.
• One-off Additions: Lump-sum amounts added to savings at specific ages (in nominal terms).

Inputs

Savings Fund

• Savings Amount: The total amount of savings and cash available at the beginning of the financial plan. This represents the starting balance.
• Cash Rate (%): The annual interest rate earned on the cash/savings portion. This is an after-inflation (real) rate of return. For example, if inflation is 2% and cash earns 4%, enter 2%.
• Cash Reserve: The target amount to maintain in a cash or emergency fund. The financial model will attempt to preserve this amount before withdrawing from savings during shortfall years.

Excess Cashflow Allocation

• Allocate Excess Cashflow: A toggle to enable or disable the automatic allocation of surplus income. When enabled, any positive net cashflow (income minus expenses) for the year will be distributed according to the percentages specified.
• Savings %: The percentage of excess cashflow to be allocated to the savings fund.
• Investment Fund % (for each active fund): The percentage of excess cashflow to be allocated to each of the active investment funds.
• Property Debt % (for each property with debt): The percentage of excess cashflow to be allocated toward paying down the mortgage principal on properties. This accelerates debt repayment beyond regular mortgage payments.

Important Notes:

• The total of all allocations (Savings + Investment Funds + Property Debt) must equal 100%.
• The system automatically validates and caps allocations to prevent exceeding 100%.
• When editing one allocation, the maximum allowed value adjusts based on the sum of other allocations.
• Empty or invalid inputs are automatically set to 0%.
• This feature is hidden in Planner Lite mode.

Annual Contributions

Recurring contributions that are made to the savings fund at specified age ranges. These are treated as expenses in the cashflow and added to savings each year the contribution is active.

• Amount: The annual contribution amount (in nominal terms, adjusted for inflation).
• Start Age: The age when contributions begin.
• End Age: The age when contributions end.
• Description (Optional): A label for tracking the contribution (e.g., "Extra Savings Plan").

One-off Additions

Lump-sum amounts added to the savings fund at specific points in the future. These are added in nominal terms (not adjusted for inflation).

• Amount: The value of the one-off savings addition.
• Age: The age at which the savings addition will be made.
• Details (Optional): A brief description of the addition (e.g., "Inheritance", "Sale of Asset", "Bonus Payment").

Calculations

Cash Rate on Savings

The savings fund grows annually based on the specified cash rate. This is a real rate of return (after inflation).

Formula: End of Year Savings = Start of Year Savings * (1 + Cash Rate / 100)

Example:

• Start of Year Savings: $50,000
• Cash Rate: 2% (real return above inflation)
• Inflation: 2.5%

Real Growth = $50,000 * (1 + 2 / 100) = $51,000

Note: The nominal return would be approximately 4.5% (2% + 2.5%), but the model uses real returns for consistency.

Excess Cashflow Allocation

When "Allocate Excess Cashflow" is enabled, any positive net cashflow for the year is distributed according to the specified percentages.

Formula:

Net Cashflow = Total Income - Total Expenses
Amount to Savings = Net Cashflow * (Savings % / 100)
Amount to Investment Fund X = Net Cashflow * (Investment Fund X % / 100)
Amount to Property Debt X = Net Cashflow * (Property Debt X % / 100)

Allocation Validation:

• System enforces: Savings % + Sum(Investment %) + Sum(Property Debt %) = 100%
• Maximum allowed per field = 100% - Sum(all other allocations)
• Empty or negative values automatically set to 0%

Example 1: Basic Allocation

• Net Cashflow: $10,000
• Savings: 20%
• Investment Fund 1: 50%
• Investment Fund 2: 30%

Amount to Savings = $10,000 * 20% = $2,000
Amount to Fund 1 = $10,000 * 50% = $5,000
Amount to Fund 2 = $10,000 * 30% = $3,000
Total Allocated = $10,000 ✓

Example 2: With Property Debt Repayment

• Net Cashflow: $15,000
• Savings: 10%
• Investment Fund 1: 40%
• Main Property Debt: 30%
• Investment Property Debt: 20%

Amount to Savings = $15,000 * 10% = $1,500
Amount to Fund 1 = $15,000 * 40% = $6,000
Amount to Main Property Principal = $15,000 * 30% = $4,500
Amount to Investment Property Principal = $15,000 * 20% = $3,000
Total Allocated = $15,000 ✓

Annual Contributions

Annual contributions are treated as recurring expenses that increase the savings balance.

Formula:

If Start Age ≤ Current Age ≤ End Age:
  Inflated Contribution = Base Amount * (1 + Inflation Rate / 100) ^ (Current Age - Start Age)
  Savings Balance += Inflated Contribution
  Net Cashflow -= Inflated Contribution (treated as expense)

One-off Additions

One-off additions are added directly to the savings balance in the specified year. These are in nominal terms and not adjusted for inflation.

Formula:

If Current Age = Specified Age:
  Savings Balance += One-off Amount

Example:

• One-off Amount: $50,000 (Inheritance)
• Specified Age: 55
• Current Age: 55

Savings Balance increases by $50,000 at age 55

Cash Reserve Logic

The cash reserve is the target amount to maintain in the savings fund for liquidity and emergency purposes.

Positive Cashflow (Surplus Year):

1. If Savings Balance < Cash Reserve:
   • First priority: Top up savings to reach the Cash Reserve level
   • Remaining surplus: Allocate according to specified percentages
2. If Savings Balance ≥ Cash Reserve:
   • Allocate entire surplus according to specified percentages

Negative Cashflow (Shortfall Year):

1. Withdrawal Priority (managed in withdrawal priorities settings):
   • System attempts to preserve the Cash Reserve amount
   • Will first draw from Savings, investment funds and KiwiSaver funds if available
   • Cash Reserve used as last resort or when other asset buckets depleted

Example - Cash Reserve Top-Up:

• Current Savings: $8,000
• Cash Reserve Target: $10,000
• Net Cashflow: $5,000
• Allocations: Savings 20%, Fund 1 80%

Step 1: Top up to Cash Reserve
  Shortfall = $10,000 - $8,000 = $2,000
  Amount to Savings = $2,000
  Remaining Cashflow = $5,000 - $2,000 = $3,000

Step 2: Allocate remaining according to percentages
  Amount to Savings (from %) = $3,000 * 20% = $600
  Amount to Fund 1 = $3,000 * 80% = $2,400

Step 3: Final balances
  Total to Savings = $2,000 + $600 = $2,600
  Total to Fund 1 = $2,400
  Final Savings Balance = $8,000 + $2,600 = $10,600