Gone are the days when financial planning software was being used only by financial experts and planners Today even customers have started understanding the importance and need for such software because of the various advantages associated with it. Without such a tool, planning one’s financial future, from the long term perspective is certainly not going to be an easy task. However choosing the right software is also not an easy job given the fact that there are dozens of such options available. Hence, lot of homework and due diligence must be done and only then should one choose a suitable option which meets specific needs and requirements. So, it would be worthwhile to have a look at the various factors to be considered when it comes to choosing the right financial planning software. We also will be looking at a few software solutions available in the market. While some are free, there are other which have to be paid for.
Goal Based Or Cash Flow Based
When choosing software one has basically to look at two options. Software which work on goal based objectives or cash flow based objectives. Both methods have their own features and advantages and at the end of the day it would depend on the end user and their objectives. They are in the best position to choose the right one keeping in mind their main requirements.
Goal based financial tools captures data and comes out with a suitable plan which is focused towards a specific goal or multiple goals. It also predicts whether such goals will be achieved through such a process. This type of planning could be useful if a family has specific commitments such as home loan payments, children’s education, and additional medical emergencies and so on. Usually this is projected using the straight line method. In this form of financial planning the income earned is usually not tracked. Instead this method works on the assumption that a person already has funds available with him and it is only a matter of allocating the same to reach the desired objective as far as expenses are concerned.
When we talk about cash-flow based software for financial planning we are look at a planning method which tries and looks up almost each and every dollar that is available in a household. It combines all the cash flows and incomes. It could include salary income, income from self employments, rents if available, and portfolio incomes just to name a few. The cash flow methods after factoring all inflows also takes into account the outflows which have been planned. If the inflows are more than the outflow then we have a cash surplus and if not there is a deficit.
Both the above options have their own advantages and as mentioned above, the onus should lie with the customer as to which option he would like to take. At the end of the day it should be something which help him not only to plan his expenses and incomes but also save something for the rainy day and also for life post-retirement.
Now let us look at a few of the financial planter solutions which are available in the market. A few are paid while the others are free. Let us look at the features and give an useful perspective to the customers so that they can choose the best.
The Stage Of Life Is Important
When it comes to choosing the best tool the stage of life you are in is important. It would depend on whether you are retired or still working. It would also depend on the kind of amount which you are ready to set apart for the rainy days. You could choose between paid tools or free ones and we will look at a few of them.
Fidelity Income Retirement Planner
This is perhaps a great tool for those who would like to look at various permutations and combinations. They would like to look at the short term impact and the long term impact and then decide. For them this is a great buy but it comes with a cost. It is available only for Fidelity customers and the cost is $300. However, there are a few employers who offer it for free to their employees.
It is user friendly and give a clear idea whether you will be able to meet specific goals and also recommends investment which will help you reach there. It is a sophisticated and quality model and has come out from the stables of William Sharpe who is a noble prize winner. However, it is not good for getting reviews because even the best managed funds do not get a good review from this tool.
Vanguard Retirement Calculator
This is a free calculator and is easy to use. But finding it could be a problem. It offers planning for education and also planning for retirement. It is useful for those who are looking for simple tools to find out if you are saving enough. Pros are easy to uses and freely available. Cons include use of tools which target only average investment returns. It does not have Monte Carlo simulation and data is not saved.
T. Rowe Price Retirement Income Calculator
This is another free retirement income calculator. It offers retirement planning tools and also investment planning tools. It offers Monte Carlo simulation and therefore suitable for retired person. It is easy to use and could be useful to help find out as how long your savings will last. It gives the best analysis for free in five minutes. Downside is that all savings are assumed to be tax deferred.
For those who are looking for super detailed calculations and projections going in for ESP PlannerPlus could be a good choice. It comes with a price of $199 and gives good information about retirement spending, insurance needs and investment returns. It has been developed by two economists Laurence Kotlikoff and Jagadeesh Gokhale, and elaborate details are available. It saves your data. The downside is the 81 page user manual which is not easy for many to understand.
Quicken’s Retirement Planner
This is paid plainer and comes with a price of $59. It gives a reasonably good idea as to how much one needs to save. The financial data can be saved on to your hard drive. However, it does not come with Monte Carlo Simulations.