Simple Budgeting for Personal Finances with Gnucash

David Schmitt david_schmitt at
Mon Jun 17 20:27:40 EDT 2013

> On 16 Jun, Oliver Kiddle wrote:
>On 13 Jun, David Schmitt wrote:
>> I've begun documenting my approach on this website:
>>  It's still very much a
>> work in progress, but the Overview->Minimal menu option
>> should give you Gnucash veterans a good feel for what I'm
>> doing.  Constructive feedback is welcome!
>Using the balance of the expense accounts as the budget is a
>nice idea.  I've never cared too much about the total
>amounts of income/expenses since the start of my gnucash
>file anyway. You've also convinced my that the zero sum
>approach is a better way to handle my personal budget.


>The main problem with your system seems to relate to Gnucash
>reports not handling it. How do you get a report of actual
>expenses and how does it know the difference between a
>budget allocation and a rebate. I'm not sure I've understood
>the effect of using Equity accounts entirely but am guessing
>it is related to reporting.
>Is the Equity:Adjustments account there to handle transfers
>between "current" and "long term" accounts as you seem to
>term it in your Limitations page.


Hi Oliver,

Let me start with the key mental shift that led to my approach:

I noticed that traditional Gnucash accounting used:

    1.  Income/Expense accounts to accumulate amounts
    2.  Cash Flow reports compared to the (external) budget

I re-purposed Gnucash to instead use:

    1.  Equity accounts to record the budget plan and progress
    2.  Cash Flow reports to calculate income/expense amounts

Therefore I find only need/use two basic reports:

    1.  The Account Summary report that serves two purposes:
        a. Current balance of my bank accounts and credit cards
        b. Remaining spendable balance in each budget category
            (virtual envelopes, if you will)

        Be sure the starting date is the beginning of time.
        Typically the ending date is the current date.

    2.  The Cash Flow report is used to calculate actual
        income and expenses (that's income and expenses from
        a budget or layman's perspective, not an accountant's).
        Used primarily for budget planning purposes.

        Be sure when you run the Cash Flow report that you
        include all the "current" asset and liability accounts.
        Do NOT include any of the budget (equity) accounts.
        Set the dates as appropriate for the period you want
        to measure.

As you have noticed, the one primary limitation of my approach
is related to what I'm calling "long term" accounts.  The
simplest example I can think of is something like an auto loan.

*   Budget/layman's perspective: large "expense" of monthly payment.

*   Accounting perspective: small "expense" of interest,
    plus large transfer from asset account to liability account.

Since I don't want to bring the entire loan balance into my "current"
accounts (that would result in a permanent negative budget balance
until the loan was repaid), there is no way I know to directly reconcile
those two.

I prefer to incur the overhead of some double bookkeeping so I can
reap the other benefits.  For me, the only impacted transactions are:

1. Loan payments (mortgage, auto)
2. Non-budget controlled investment contributions (401(k), IRA, 529)

Hopefully that has clarified more than confusing things...



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