bsce, mba, msnm, msba, phd

## patents

SYSTEMS AND METHODS FOR GENERATING A METRIC OF FINANCIAL STATUS RELATIVE TO A FINANCIAL GOAL

US 7,865,419 B2 The present application claims priority under 35 U.S.C.§119(e) to U.S. provisional application Ser. No. 60/897,608 filed Jan. 25, 2007.

SUMMARY OF THE INVENTION The present invention satisfies this need by providing, among other things, a system for generating a metric of an entity's financial status relative to a financial goal. The system includes and input device for inputting entity data and an output device for outputting the metric, as well as memory for storing and a processor for processing such data. The memory also contains instructions operable on the processor to cause the system to carry out the novel aspects of the present invention.

The entity data generally includes at least a value of the entity's income, a value of the entity's actual capital, a value of the entity's actual savings, a future date (or, alternatively, the entity's present age and the entity's desired age of achieving a financial goal), and a desired income on the future date.

The value of the entity's total assets (determined based on the entity data inputted into the system) is then simulated over time based on historical rates. The simulation may be deterministic or based on probability theory, such as a Monte Carlo simulation. Based on the results of the simulation, a required capital is determined. A required capital is equal to the present value of capital that is alone sufficient, if compounded at a particular rate until a desired date of achieving a financial goal, to alone provide a particular probability of achieving a financial goal.

A capital deficit is then determined. The capital deficit is equal to the difference between the future value of an actual capital and the future value of a required capital. Using the capital deficit, a required savings is determined. The required savings is an amount of annual savings in a first year that will equal the capital deficit if savings continues at this annual rate (adjusted for inflation) until a desired date of achieving a financial goal, and if the total accumulated savings are compounded at a particular rate until the desired date.

Next, a capital ratio is determined. The capital ratio is equal to the present value of an actual capital divided by the present value of a required capital. A savings ratio is calculated next. The savings ratio is equal to an actual savings divided by a required savings.

Finally, a metric of an entity's financial status relative to achieving a financial goal is generated. The metric is equal to the sum of the capital ratio and savings ratio. If the metric is equal to one, there is a particular probability of achieving the financial goal on the desired date. The metric is then outputted by the system, generally for review by the entity.