How can I do something like the "Envelope System"

[Dennis Muhlestein]

On Jan 3, 2009, at 10:32 AM, John R. Carter, Sr. wrote:

> What you show in your Plan B is how I do it, but my Chart Of  
> Accounts looks different since I follow the suggested organization  
> presented by GnuCash that involves layers of subaccounts.
>
> There's really no difference between what you show in Plan B and  
> what follows except the layers of the accounts.
> The following General Ledger shows the activity:
>
> First, you get paid:
>
> Income:Payroll - debit $100
> . Assets:Checking - credit $100
>
> Then allocate funds for the budget (the scheduled transaction is  
> your budget):
>
> Assets:Checking - debit $100
> . Liabilities:Budget:Groceries - credit $100
>
> And you do a transfer from Checking to Savings to cover the budget  
> fund.
> Now the expense occurs:
>
> Liability:Credit card - debit $100
> . Expenses:Groceries - credit $100
>
> This requires compensating the credit card from the budget funds.  
> But since the money is in a Savings account, you need to move the  
> money into the Checking account in order to pay the credit card:
>
> Liabilities:Budget:Groceries - debit $100
> . Assets:Checking - credit $100
>
> Finally, you pay the credit card bill:
>
> Assets:Checking - debit $100
> . Liabilities:Credit card - credit $100
>
>
> There's nothing to prevent you from waiting until month end to  
> transfer funds from the savings account to your checking account so  
> you can write a check to cover your credit card transactions. Except  
> you want to make the entries in GnuCash as they happen so your  
> budget is updated on the fly -- that helps to keep you honest.  
> Budget failure is generally due to not keeping yourself honest and  
> up to date. Overdrafts are possible only if you insist in pushing  
> your budget underwater.
>
> Now, suppose you want to pay your auto insurance each year in full  
> and on time. For each weekly payday you schedule a transfer from  
> checking to savings in the amount of 1/52nd of the final payment  
> (assuming you get paid weekly) and show that transfer as an increase  
> in the auto insurance budget. That money is lumped in with all the  
> rest of your budgeted money in the external savings account, and it  
> accumulates interest. After 12 months you have a scheduled  
> transaction to pay the auto insurance. You get notified that the new  
> payment is going to be higher. Hopefully, the interest accrued will  
> cover the increase in premium (laugh). If it didn't (no duh!), you  
> "borrow" from another budget item to cover the expense. You adjust  
> your monthly scheduled transaction for the transfer accordingly. The  
> cycle repeats. Because premiums always increase more than your  
> interest earned, and you never get a raise, you never seem to get  
> ahead. But thank you anyway for participating in the National Economy.
>
> As long as you don't overspend your budget, your top level budget  
> account (under Liabilities) should be more than what your total  
> budget is since the savings account accrues interest. So that  
> account is where you debit the interest each month. Oh! And don't  
> forget to show that interest in your Income:Interest account.
>
> Income:Interest - credit $0.12
> . Liabilities:Budget - debit $0.12
>
> Woo-hoo! A budget that works for you!
>
>

I guess I'm working on a variation of this where you don't have a  
separate account you can use just for your budget.  In this case,  
after I deposit money in the checking account, there is no real  
liability account to deposit the budget into.  I'm playing around with  
putting the budget accounts as a liability sub-account under the  
checking account.  (If you don't do this, you can't reconcile your  
account.)  This works to see the balance of the checking account on  
the main accounts page but if you look at the register, it's somewhat  
messed up when compared to your bank statement.  Also, when you  
reconcile your checking account, you have to make sure you check the  
"include subaccounts" checkbox.  There could possibly be quite a  
number of transactions that aren't on your bank statement depending on  
how often you use a separate account though.  It seems to be working  
otherwise though.  I'm not sure which method I like better so far.  I  
know which I make more mistakes with, but that could simply be that  
I'm used to the way I did it the 1st time.

I do have one issue I haven't solved really though.  I have more than  
one checking account.  Sometimes I regularly deposit money in both.   
With the way I set up the virtual budget account, this isn't a problem  
since the budgeted cash goes into the virtual budget account.   With  
subaccounts, I have to have budget liability accounts under each  
checking account but that isn't very practical.  It might lead to me  
accidentally using the 1st bank account's budget to spend on groceries  
but forgetting and paying the credit card with the 2nd bank accounts  
balance.

-Dennis