Click New Accounts File on the File menu. This will create a new account with all amounts set to zero.
Initially we only want see the effects over one year
so click "1" in the Years dropdown
list.
Ensure that the Initial Funds button
is in the down position, so that the text box is editable, and the
Initial Funds figure is included in all calculations.
Now enter a figure of $100,000 in the text box and press the ENTER key.
The amount in Initial Funds - $100,000
in this case - is instantly distributed between the Primary and Secondary accounts,
in the proportions set in the Split control
(50-50 is the program default). The opening balances of the two accounts
are shown in the table, in the first column of figures, and are also represented
by the height of the first bar in each chart.
Click the topmost small square buttons in the Split control.
This simplifies our example by allocating 100% of the Initial Funds
to the Secondary Account (upper chart).
Now click on the Tax/Inflation tab under the main Account
Details tab to reach the control to set the inflation rate.
Make sure the Inflation button
is in the down position. This causes all calculations to reflect
whatever inflation has been set, and allows
the inflation rate to be edited.
Enter an inflation rate of 2.5%, either by typing in
the number (and pressing the ENTER key),
or by using the clickspin arrows.
Notice that, notwithstanding the existence of an inflation rate
of 2.5%, the account balance for the first and last years are the
exactly the
same.
This matches the real life situation - if you placed a
sum of money in a bank and made no withdrawals, then you would expect
to receive back exactly what you put in. (For the purposes
of this example we are assuming there is no interest paid on this
account, and no bank charges).
However, inflation has been at work, and the goods you
bought last year for $100, will, this year, on average, cost you $102.50. If you click the Today's Values button
- to the right of the Inflation button-
you will see the table and chart automatically adjust to reflect the real loss
in value of your investments
or savings. After one year, your $100,000 are only worth $97,561.
Now take time to play with the Years control
to see the very real depredation due to inflation over a longer time
period. For instance, after 20 years, your $100,000 has shrunk to
a mere $60,027. Remember, this is at today's values.
In
your hand you would still be holding a bag marked '$100,000', but
in the market it would only buy you $60,027 worth of goods
(at today's prices). That's
inflation.