What is the purpose of a reserve fund?
A reserve fund allows you to set aside some amount of money for an emergency, and it will remain in reserve for the rest of your life. This pool of money will also be a part of your partner or spouse's reserve fund if you die first and then treated as a bequest in the household estate after the final year of the survivor. If the year arrives when you might need to use part or all of this emergency fund, you can reduce the balance in your reserve fund at that time by the amount you use.
This setup approach targets the balance you wish to maintain in each future year not the dollars you save each year. Contributions and earnings will be calculated for you (contributions plus interest earned will equal total annual saving to your reserve fund). So if you need $15,000 in some future year, say 20 years from now, pick the year and enter $15,000. In the reports,you will see how much you need to contribute each year between now and then to achieve this goal.
If instead you wish to target your annual saving (in other words, you don't know how much you will need, you just know how much you are wanting to save each year), you need to enter a new balance for each year. For example, if you wish to contribute $1,000 per year for the next 5 or 10 years to this reserve fund and you begin with $0, you could indicate a balance of $1,000 in the first year, $2,000 in the second year, $3,000 in the third year and so on. Remember, we are indicating the balance desired for each year, not the contributions. If your nominal return on the reserve fund is the same as your inflation rate, say 2.5%, (in other words, you get 0% real return) then you will see in your reserve fund report that your contributions are exactly $1,000 per year. However, if you earn some interest above inflation, say 3.5% interest (where inflation is at 2.5%) then you will see that fewer contributions dollars are needed each year since your earnings relative to inflation along with your contributions equal the total saved for the year. In other words, your interest earned counts toward your total saving for each year. Your interest rate assumption on the reserve funds is set in Settings and Assumptions area.
What if you want to set aside some amount of money for some future purchase?
If you are saving for new car or some costly expenditure, you should do this by entering that dollar amount as a future special expense. The regular assets will automatically accumulate and be available for that expense. Special expenses are a part of fixed spending, not discretionary spending. With this approach, you will not see this "saving for new car" pool accumulate independent of regular assets, but nonetheless the assets will be there in the model as part of regular assets.
What if you want to set aside a temporary reserve fund, not one that is passed on in estate if never used?
The reserve fund described above is presumed to be a lifetime emergency fund. But if you wish to accumulate a temporary fund that you will give back to yourself for spending after a number of years you can create a series of special expenses that represent deposits into your temporary saving fund. Such a fund will not show up in the program reports since you will be keeping track of it apart from MaxiFi. You can use this money any time you like, and you would not record what you eventually spend it on in MaxiFi. This approach is very much like the reserve fund as designed, where, as described above, you reduce in the balance in the reserve fund in the year you use it. The difference is that with this temporary saving approach you are accounting for your annual contributions and the running balance, interest earned, and eventual spending from account off the books as far as MaxiFi is concerned. That said, the best practice is to use the lifetime reserve fund as designed knowing that in any future year you can spend that reserve fund and reduce that reserve-fund balance by any amount or to $0 and spend the money on an emergency or anything else. Some users, however, may prefer the simplicity of just creating a series of special expenses of, say, $2,400 a year as a way to save $7,200 by the end of a three-year period. This simplified approach, however, ignores interest earned (and the tax consequences of that interest).
What if you don't want to spend all of your available annual discretionary spending each year?
In other words, you want to under spend your available annual spending allowance. Many people do nothing in this case. They just view the discretionary spending allowance as a cap on what what they could spend. Each year they enter their unspent money as part of regular assets in the next year, and see that the model has calculated a new, higher discretionary spending amount for the next and subsequent years. This annual under spending, if continued, will cause your discretionary spending to go up each year from the previous year.
If you want to see this under spending in your model, you can use the Living Standard adjustment in Settings > Living Standard to lower next year's spending to say, 80% for a period of a few years and then set it back to 100% in 5 or ten years. The discretionary spending line in such a chart would look like a stair step in most cases.