A simple method of performing budgeting

Ben Stanley bds02@uow.edu.au
Fri, 15 Jun 2001 13:24:39 +1000


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I have a book which claims to help people to budget and save money. They 
recommend that you open a bank account which will hold all your budgeted 
funds. You create a set of accounts for your budget:

Utilities
Transport
Food
Rent
Savings
etc...
Unallocated

At any point in time, the sum of money contained in all of these 
accounts must be the same as your statement balance at the same point in 
time.

Now, part of the budgeting process is figuring out how much money per 
pay packet you are going to allocate to each budget account. That is the 
planning stage. (This could be assisted by a druid or perhaps more 
complicated stuff in gnucash.) Note that I only consider the case where 
you don't vary the contributions over time - that is, the contributions 
remain the same from one pay to the next. Once you have figured that 
out, you create a giant split which distributes the funds from each pay 
into their respective accounts.

It is envisioned that this would lead to the following account structure:

Bank Account
    Utilities
    Transport
    Food
    Rent
    Savings
    etc...
    Unallocated

When you get paid, you would transfer from Income into Unallocated:

Pay                             
     Income                               1000.00
     Bank Account:Unallocated   1000.00

So now your Bank Account:Unallocated has $1000.00. (That is also the 
balance in Bank Account, since all the other accounts are 0 at the moment.)
Then you would create a giant split to distribute the funds after you 
got paid: (these numbers are completely bogus)

Distribute Budgeted Amounts
     Bank Account:Unallocated              950.00
     Bank Account:Utilities     200.00
     Bank Account:Transport     100.00
     Bank Account:Food          150.00
     Bank Account:Rent          200.00
     Bank Account:Savings       200.00
     Bank Account:etc...        100.00

Since we have just moved money around inside the Bank Account, the 
balance of the bank account has not changed. This transaction will not 
appear on your bank statement. The Bank Account still contains $1000.00, 
the sum of all the child accounts.

When it comes time to pay the gas (heating) bill, you would first look 
at your Bank Account:Utilities account to see if there is enough funds 
to pay it. If not, you're in trouble... but we'll leave that case until 
later. You pay it like this:

Gas Company
     Expenses:Gas                60.00
     Bank Account:Utitlites                 60.00

The balance sheet is now:

Bank Account                     
     Unallocated                  50.00
     Utilities                   140.00
     Transport                   100.00
     Food                        150.00
     Rent                        200.00
     Savings                     200.00
     etc...                      100.00
Total for Bank Account:                     940.00


Perhaps you pay two things at once, or withdraw some cash to cover some 
things:

Groceries and Rent
     Bank Account:Food                       80.00
     Bank Account:Rent                      200.00
     Cash                        280.00

Of course, this method does not track what you do with the cash :-) it's 
to show that you can perform one transaction involving multiple budget 
categories at once.

Some bills occur only once a year (eg insurance), so this method allows 
you to put aside some money from each pay to cover them. It also helps 
you to decide if you really can afford to go out to dinner tonight - to 
answer that, just look in the Food account and see how much there is in 
it compared to how long until the next pay packet comes in!

Now, so far everything is OK... Unfortunately, this method is 
impractical in Gnucash because it stuffs up reconcilliation of the Bank 
Account to the bank statement.

To be able to reconcile such an account with child accounts to a bank 
statement, the reconcilliation dialog must be changed. Transactions 
which just move funds around inside the Bank Account will not show up on 
the statement, and so should not be shown in the reconciliation dialog. 
Multiple transactions which result in one net amount entering or leaving 
the Bank Account must be performed as splits if they were performed at 
one time. These amounts should show up in the reconcilliation dialog, as 
they should correspond to items on the statement. Currently, no items 
are shown in the reconcilliation dialog.

A separate budgeted category may be created to cover bank fees, or you 
may elect to cover them from unallocated funds. Bank interest may be 
handled similarly.

A sample gnucash account with these transactions recorded is attached. 
The expected bank statement would be as follows:

 1/6/2001  Opening Balance                                   0.00
15/6/2001  Pay                       1000.00              1000.00
16/6/2001  Gas Utility                           60.00     940.00
17/6/2001  Cash Withdrawal                      280.00     660.00
18/6/2001  Transfer to Savings Account          200.00     460.00
31/6/2001  Closing Balance                                 460.00

Note that I found it rather difficult to put the example in to gnucash, 
because there is no register which can interact with the Bank Account 
and it's children in the proper way for this approach. The General 
Register does not show the expected total in the bank account, which 
would be useful for comparing with the bank statement. Note, however, 
that the chart of accounts does display this information correctly.

This usage may not be standard accounting practice, but I would find it 
useful to be able to work with gnucash in this way. Comments on how this 
could be implemented without breaking standard accounting practices 
would be appreciated.

Ben.


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<?xml version="1.0"?>
<gnc-v2>
<gnc:count-data cd:type="account">20</gnc:count-data>
<gnc:count-data cd:type="transaction">7</gnc:count-data>
<gnc:account version="2.0.0">
  <act:name>Bank Account</act:name>
  <act:id type="guid">a6643dafd77b39c51de221e7f9cdc2fb</act:id>
  <act:type>BANK</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Food</act:name>
  <act:id type="guid">230a910c707d5cae9e907b8dec579bcc</act:id>
  <act:type>BANK</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a6643dafd77b39c51de221e7f9cdc2fb</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Rent</act:name>
  <act:id type="guid">34b147043508006a2043144116aa9fd9</act:id>
  <act:type>BANK</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a6643dafd77b39c51de221e7f9cdc2fb</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Savings</act:name>
  <act:id type="guid">4603e841a0652b8dc5258fad8a893107</act:id>
  <act:type>BANK</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a6643dafd77b39c51de221e7f9cdc2fb</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Transport</act:name>
  <act:id type="guid">41971abc22938abefa27b5f4358c2951</act:id>
  <act:type>BANK</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a6643dafd77b39c51de221e7f9cdc2fb</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Unallocated</act:name>
  <act:id type="guid">59763e0293a5ce6fe1c15256ec268640</act:id>
  <act:type>BANK</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a6643dafd77b39c51de221e7f9cdc2fb</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Utilities</act:name>
  <act:id type="guid">c247e1e72b8e2c693f839fc7faed9e5b</act:id>
  <act:type>BANK</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a6643dafd77b39c51de221e7f9cdc2fb</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Misc</act:name>
  <act:id type="guid">08ff80d0c7e1f4e935169bc301bb7349</act:id>
  <act:type>BANK</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a6643dafd77b39c51de221e7f9cdc2fb</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Savings Account</act:name>
  <act:id type="guid">654362e75316e00dd784187c1ad4b0c0</act:id>
  <act:type>BANK</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Cash</act:name>
  <act:id type="guid">faf1511e7dfb8c63e451dc0021855a69</act:id>
  <act:type>CASH</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Income</act:name>
  <act:id type="guid">609f66a6a7057e478073c0d155ef9266</act:id>
  <act:type>INCOME</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Interest</act:name>
  <act:id type="guid">2e87a448522ebe19e648863b200c99d6</act:id>
  <act:type>INCOME</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">609f66a6a7057e478073c0d155ef9266</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Pay</act:name>
  <act:id type="guid">57f2581629b963ddeb2a81264e938636</act:id>
  <act:type>INCOME</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">609f66a6a7057e478073c0d155ef9266</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Expenses</act:name>
  <act:id type="guid">a75890736aab207118f90c6dfe631ff9</act:id>
  <act:type>EXPENSE</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Food</act:name>
  <act:id type="guid">903bc0e48b91be5cf917bd69ce32aecf</act:id>
  <act:type>EXPENSE</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a75890736aab207118f90c6dfe631ff9</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Misc</act:name>
  <act:id type="guid">fdb384049f3c81749c47e61d063c064b</act:id>
  <act:type>EXPENSE</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a75890736aab207118f90c6dfe631ff9</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Rent</act:name>
  <act:id type="guid">6227eb312fe7bb23140c7e85689c952f</act:id>
  <act:type>EXPENSE</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a75890736aab207118f90c6dfe631ff9</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Transport</act:name>
  <act:id type="guid">6f20889ef6b901d3bc0fd39f7ce5c8c8</act:id>
  <act:type>EXPENSE</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a75890736aab207118f90c6dfe631ff9</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Unallocated</act:name>
  <act:id type="guid">91ce647c5e0b61f2d40c939751da20d8</act:id>
  <act:type>EXPENSE</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a75890736aab207118f90c6dfe631ff9</act:parent>
</gnc:account>
<gnc:account version="2.0.0">
  <act:name>Utilities</act:name>
  <act:id type="guid">f89161ef0ca09876597445cba696833a</act:id>
  <act:type>EXPENSE</act:type>
  <act:currency>
    <cmdty:space>ISO4217</cmdty:space>
    <cmdty:id>AUD</cmdty:id>
  </act:currency>
  <act:currency-scu>100</act:currency-scu>
  <act:slots>
    <slot>
      <slot:key>notes</slot:key>
      <slot:value type="string"/>
    </slot>
  </act:slots>
  <act:parent type="guid">a75890736aab207118f90c6dfe631ff9</act:parent>
</gnc:account>
<gnc:transaction version="2.0.0">
  <trn:id type="guid">8a4f3e689a1ec4151249912ba4791366</trn:id>
  <trn:date-posted>
    <ts:date>2001-06-15 00:00:00 +1000</ts:date>
  </trn:date-posted>
  <trn:date-entered>
    <ts:date>2001-06-15 13:07:40 +1000</ts:date>
  </trn:date-entered>
  <trn:description>Distribute Budgeted Amounts</trn:description>
  <trn:splits>
    <trn:split>
      <split:id type="guid">a0216647d38dc1369438c0f405b5da1a</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>-95000/100</split:value>
      <split:quantity>-95000/100</split:quantity>
      <split:account type="guid">59763e0293a5ce6fe1c15256ec268640</split:account>
    </trn:split>
    <trn:split>
      <split:id type="guid">398d23f2253d45ee76768c5eef26e600</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>15000/100</split:value>
      <split:quantity>15000/100</split:quantity>
      <split:account type="guid">230a910c707d5cae9e907b8dec579bcc</split:account>
    </trn:split>
    <trn:split>
      <split:id type="guid">33ce60a30fcd6255818262eb51269a9c</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>10000/100</split:value>
      <split:quantity>10000/100</split:quantity>
      <split:account type="guid">08ff80d0c7e1f4e935169bc301bb7349</split:account>
    </trn:split>
    <trn:split>
      <split:id type="guid">46fe7818441949c085b253ee94ec8d02</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>20000/100</split:value>
      <split:quantity>20000/100</split:quantity>
      <split:account type="guid">34b147043508006a2043144116aa9fd9</split:account>
    </trn:split>
    <trn:split>
      <split:id type="guid">d87d24757566fbab6f3bfd992103c65c</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>20000/100</split:value>
      <split:quantity>20000/100</split:quantity>
      <split:account type="guid">4603e841a0652b8dc5258fad8a893107</split:account>
    </trn:split>
    <trn:split>
      <split:id type="guid">3ff7416d9904d19aeaea4e03c8c8ef79</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>10000/100</split:value>
      <split:quantity>10000/100</split:quantity>
      <split:account type="guid">41971abc22938abefa27b5f4358c2951</split:account>
    </trn:split>
    <trn:split>
      <split:id type="guid">c9d7cd166a6e42c29ea60445d5f0fb70</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>20000/100</split:value>
      <split:quantity>20000/100</split:quantity>
      <split:account type="guid">c247e1e72b8e2c693f839fc7faed9e5b</split:account>
    </trn:split>
  </trn:splits>
</gnc:transaction>
<gnc:transaction version="2.0.0">
  <trn:id type="guid">3bf3dce75da19b6d06107eaf202bbc1c</trn:id>
  <trn:date-posted>
    <ts:date>2001-06-17 00:00:00 +1000</ts:date>
  </trn:date-posted>
  <trn:date-entered>
    <ts:date>2001-06-15 13:11:34 +1000</ts:date>
  </trn:date-entered>
  <trn:description>Groceries and Rent</trn:description>
  <trn:splits>
    <trn:split>
      <split:id type="guid">c02bceb7ec994aad503dddb10ae82571</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>-8000/100</split:value>
      <split:quantity>-8000/100</split:quantity>
      <split:account type="guid">230a910c707d5cae9e907b8dec579bcc</split:account>
    </trn:split>
    <trn:split>
      <split:id type="guid">26e6d313af1f6de2f063db3ca5fb23ed</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>-20000/100</split:value>
      <split:quantity>-20000/100</split:quantity>
      <split:account type="guid">34b147043508006a2043144116aa9fd9</split:account>
    </trn:split>
    <trn:split>
      <split:id type="guid">c40d158fd0d3c465fd96221cd2c84d72</split:id>
      <split:reconciled-state>n</split:reconciled-state>
      <split:value>28000/100</split:value>
      <split:quantity>28000/100</split:quantity>
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