How to clear non-zero Net Cash Flow and/or Cash Balance values

When the CFM Start Age has been reached in the projections, Snap will make automatic contributions to and withdrawals from the Financial Assets to reach the desired Base Expense (nominal dollars) target.  For various reasons, you may see values under the Net Cash Flow and Cash Balance columns.

If no Financial Assets have been entered, by default, any surplus cash will be saved to the Cash Balance. Any shortfalls will be covered by a loan tracked under the Cash Balance.

The Cash Balance grows each year until retirement, and then when the Net Cash Flow is negative in 2030, Snap withdraws from the Cash Balance to cover the shortfall. Since there isn't enough money in that account to cover the shortfall, the Cash Balance goes negative in 2033. Snap uses pink highlighting to indicate the years with a negative Cash Balance. 

To avoid this, go to the Assets page and select Add Financial Asset. If the individual has no Financial Assets, enter a placeholder account with a Value of $0 and assign the appropriate asset allocation.

Here we've added an RRSP.

Snap contributes the maximum allowable to the RRSP (based on the available RRSP Contribution Room) and the rest of the surplus goes to the Cash Balance.

To avoid using the Cash Balance we must add additional types of Financial Assets. In this way, you can model projections with savings to accounts that have not been opened yet in real life. If we add a TFSA and Non-registered account, the Cash Balance is no longer needed in these years.

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If you enter a specific contribution or withdrawal, this is called an override and the cell will be highlighted yellow. If the entered amount is less than the available surplus cash, the remaining surplus is saved to the Cash Balance. If the entered amount is more than the available surplus cash there is a net negative Cash Flow (a shortfall) and the Cash Balance may also be negative.  To avoid having any values in the Cash Balance you can clear the manual overrides in the Contribution column.

Option 1: Clear the Overrides

Here, manual savings contributions have been entered and based on the client's desired lifestyle spending (Base Expenses), there is a shortfall.

If we clear the overrides on the RRSP account, that will prevent the shortfall each year.

The RRSP contributions are automatically adjusted so the Net Cash Flow remains $0.

Option 2: Delay the CFM Start Age

Another option to avoid the non-zero Net Cash Flow and Cash Balance is to delay the CFM Start Age to the first year of retirement. In the years before retirement, the Base Expense value is calculated as the Inflow minus the Outflow. The Base Expense value is assumed to be spent each year before the CFM Start Age. With the original contributions of $18,000 to the RRSP and $7,000 to the TFSA, the Base Expense value is less than the desired $60,000 amount from the above example.

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To cover the Base Expenses (nominal dollars) and Additional Expenses, the income is used first, then withdrawals are made from the Financial Assets following the default cash flow management (CFM) logic. If there isn't enough income or money in the Financial Assets to cover the outflows, a shortfall occurs.

Base Expense considerations

To avoid a shortfall you can decrease the Base Expenses in the projections or discuss other options with your clients. The Recommendations feature is helpful for these discussions.

Here are a few quick tips on what to check to ensure you have entered the Base Expenses correctly in the projections. 

1. Remember that other expenses already entered in the projections should not be included in the Base Expenses amount.  If your clients have provided you with a lifestyle spending amount that includes their mortgage payments, subtract this and enter the difference under Base Expenses. Make sure to enter the mortgage information under the Debts section so it is still accounted for.
2. Do not index the Base Expenses (real dollars) column. The Base Expenses (real dollars) should remain constant while the software takes care of indexing with inflation automatically. This value is displayed under the Base Expenses (nominal dollars) column.
3. For projections including a spouse, allow Snap to assign a portion of the Base Expenses to each spouse rather than entering individual Base Expense amounts. Go to Scenario Setup -> Settings -> Advanced to turn off the option to disable the automatic allocation of expenses for this scenario. 

A note about Debts and Real Assets that are classified as Joint.

Debts and Real Assets specified as Joint are split 50/50 by the software. This means that each spouse is responsible for half of the annual debt payments and half of any future purchase cost for new real assets. If one spouse does not have enough Income or Financial Assets to support half of the debt payments or purchase price of a new property, it is better to assign this debt or real asset solely to the spouse who can afford the payments.

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