Tracking Money in Savings Account

[Wayne Bird]

Michael,

Thanks for your input.  I need all the help I can get.

> Perhaps ---- but I think there is a bit of confusion. GnuCash is able to 
> manage "books" (a record of ACTUAL financial transactions) and "budgets" 
> (projected/planned transactions). In "standard" accounting both are used 
> without (in the sense meant here) of "envelopes"*.

This "standard" accounting is what I'm trying to understand.  I've used the "envelope" system my entire life, not because I couldn't stick to a budget, but because it's what makes the most sense to my pea-brain:)  But I do want to understand the "standard" so please bear with me.  The way my brain works is that every bit of money that I have belongs to some future purchase.  So all the money that I have in my checking account belongs to future daily/monthly purchases (gas, groceries, utilities, etc.), and money in my savings account belongs to future long-range purchases (car, vacation, home improvement, etc.).  So at any time I can look in these "envelopes" to know how much I can spend.

As stated in previous e-mails, one way to manage finances in GnuCash (I'm not saying this is the best or right way) is to create subaccounts of my checking and savings to actually have my monies allocated accordingly.  So I would need an assets subaccount, for example, for gas and then an expense account for gas.  When I deposit my paycheck I split the Income:Salary it into these assets subaccounts.  When I purchase gas, I transfer from the assets subaccount for gas into the expense account for gas.  This would be considered the "envelope" system.

But now I want to understand the "standard" system.  In this system, monies are not specifically allocated to anything, yes you can have subaccounts, but in general the monies are just there not allocated to anything.  A budget is created (I understand what a budget is and how to create one, in general, I haven't tried in GnuCash yet) in order to track planned vs. actual spending to ensure spending is under control.  So, when I spend money on gas, I transfer from Assets:Checking to Expenses:Gas.  If I want to see how my spending is at the end of the month  with respect to my budget, I can run a report.

Am I on track so far on this topic?

> But again, these do not represent envelopes restricting actual 
> transactions nor do the actual transactions affect these sub accounts. 

I understand that the subaccounts don't restrict actual transactions, but shouldn't they be used to prevent overspending?  For example, let's say that the subaccount has $15,000 in it.  The main/parent savings account (or whatever type of account) actually has a balance of $20,000.  Now let's say I spend $10,000 on expenses unrelated to the subaccount.  If I just look at the balance of the actual account, say from the bank statement, everything looks good, wow I have $10,000 left.  However, in reality I'm $5,000 in the hole because I need $15,000 in that subaccount.  Therefore, this $15,000 subaccount should have been reviewed before making the actual $10,000 transactions.  Is this not correct?


> What happens is "as allowed" funds a transfer transaction moves funds 
> from one of these to the main unrestricted account. 

Will you please explain the above sentence, I don't understand it.

Again, thanks for bearing with me.  If everyone hangs in there with me I'll eventually have the lightbulb turn on:)

Wayne


> Date: Thu, 16 Dec 2010 08:01:49 -0500
> From: stepbystepfarm at mtdata.com
> To: wrbird at hotmail.com
> CC: derek at ihtfp.com; warlord at mit.edu; gnucash-user at gnucash.org
> Subject: Re: Tracking Money in Savings Account
> 
> 
> >
> >Now if I wanted to see how much accumulated money
> > I've spent on movies, all I would need to do is look at the balance of 
> >Expense:Movies.  If I wanted to know how much money I have to spend on movies, then I just need to look at the balance of Asset:Bank:Movies.
> >
> >Are the two above paragraphs correct?
> >
> >  
> >
> Perhaps ---- but I think there is a bit of confusion. GnuCash is able to 
> manage "books" (a record of ACTUAL financial transactions) and "budgets" 
> (projected/planned transactions). In "standard" accounting both are used 
> without (in the sense meant here) of "envelopes"*. The idea is that the 
> actual transactions represent the actuals unconstrained by what is 
> planned. That the disciple of sticking to the budget is external to 
> either the budget or the books. In effect, the "envelope" method was 
> devised as an aid for people who had difficulty with "sticking to a budget".
> 
> 
> * Well yes, I do have "subaccounts" (designated funds) within the main 
> savings account of organizations of which I am treasurer. For the simple 
> reason that these "funds" aren't large enough to justify individual 
> accounts. But again, these do not represent envelopes restricting actual 
> transactions nor do the actual transactions affect these sub accounts. 
> What happens is "as allowed" funds a transfer transaction moves funds 
> from one of these to the main unrestricted account. Say that restricted 
> account is monies donated to help cover expenses of type X. Well once a 
> quarter (or once a year) or whatever would be allowed to have used those 
> restricted monies so transfer that amount (up to the total of expenses 
> of type X). But nothing prevents the organization from spending MORE 
> than that on X (from its unrestricted funds).
> 
> Michael