How should I enter values on a budget in gnucash ?

[Edward Doolittle]

On 1 March 2017 at 16:55, lejohnston <lejohnston at dccnet.com> wrote:

Perhaps this is not the Thread to have this discussion but you raise issues
> I have been struggling with so I am going to jump in.
>

I'll contribute what I can, but I am no expert, and I've never used
Quicken. Others can correct me and may be able to provide more help to you.


> I recently moved from Quicken to GNUCash and am starting to feel
> comfortable here. Through 20 years in Quicken I evolved a budgeting system
> that worked for me. I never budgeted anything for Asset and Liability
> Accounts.
>

My understanding of Quicken is that it is not a double entry system.
Instead, it has "categories" I think. I have become very comfortable with
double entry, after a few struggles (with which the members of this list
were extraordinarily helpful, thanks again to them). At this point I have
trouble imagining how a non-double entry accounting system would function.
(I guess they call Quicken "personal finance" rather than accounting, which
is one way to temper expectations, I suppose.)

The focus of GnuCash is definitely not budgeting, as you can tell by the
peripheral nature of the budgeting features, but as I mentioned earlier it
more or less works once things have been set up properly.

When I had a Mortgage I did not set up a Liability Account for the Mortgage
> or an Asset Account for the House. I did budget a monthly amount for the
> Mortgage. That worked fine for my budgeting purposes.
>

Part of setting up things properly is classifying accounts properly and
doing some initial set-up. At a minimum, you should classify your mortgage
and other debts as liabilities, because that's what they are. Then in your
budget, mortgage payments are transfers to the liability account.

The following may seem somewhat complicated, but your system will work
better if you do it:

Something else you should probably do is set up the interest expense
payments in your mortgage account. They are transfers from the mortgage
account to some expense account corresponding to the amount of interest you
paid each month. (IIRC the tutorial and concepts guide suggests using a
split for each payment, so that part of the payment goes directly to
interest without going into the mortgage account, while the other part of
the payment goes into the mortgage account to reduce the principal.
Personally I find that inconvenient, and it seems to work well for me to
drop the whole payment into the mortgage account and then in a separate
transaction to pay the interest.)

The interest amounts change each month because the principal is declining
(and possibly because the length of time between payments varies slightly
due to variations in the lengths of months and possibly bank holidays), but
you can get a reasonable approximation from an online calculator. You might
be able to download a CSV with the interest payments, but I find it faster
to just enter a year's worth of interest projections by hand each year.
Unless I'm super careful (which I usually am not) the projections are not
100% accurate, so I either fix them when I get a statement of account and
reconcile (best approach), or I put in correction transactions when I
notice a discrepancy (when the bank is being difficult about issuing
statements, grr).


> I did set up an RRSP Account. Then I budgeted an RRSP expense (i.e. how
> much I was setting aside each month to put into my RRSP). I can see how
> this is misleading.


Exactly.


> For instance if I was putting aside $500/month for the RRSP, that was $500
> that I did not have available to spend elsewhere, but it was not really an
> expense as it was actually a transfer to another Asset Account. At the end
> of the year when I actually put the $6000 into the RRSP account my budget
> still showed that I had $6000 unspent and I had to manipulate it before I
> started the new year. In GNUCash it seems it would be easier to budget
> $6000 into RRSP and not have the Expense:RRSP account at all.


RRSP is definitely not an expense. (For non-Canadian readers, that is
Registered Retirement Savings Plan, similar to US 401k if I understand
correctly.) It is an asset. (You can access it any time and take the money
back out ... perhaps after paying a significant penalty, that is ... but
it's still yours, so it's not an expense.)

There has been some discussion about the correct "accounting treatment" for
RRSP contributions in this mailing list, but I think some of that
discussion was wildly off the mark and just plain wrong. It seems quite
simple to me, but of course I may be wrong too. My approach to RRSP is just
to treat each RRSP account as an asset (you might have several, some
through banks and others through investment houses; I put my RRSP in the
Investment tree but you could put it under the asset tree too, or put some
RRSP accounts under Assets and others under Investments. OTOH for reporting
purposes it might make sense to put the RRSP accounts all under one subtree
of Investments.) The only really important part of the treatment is that
interest or dividends in an RRSP should come from something like
Income:Non-Taxable:RRSPIncome instead of Income:Taxable:whatever. Capital
gains in an RRSP are also not taxable. It's much simpler than accounting
for an non-registered investment plan. You'll eventually pay tax on amounts
withdrawn from the RRSP (or the corresponding RRIF, Registered Retirement
Income Fund, to which you transfer the funds after you retire), but believe
me, the government will let you know the exact amount to pay when the time
comes; at that time, the tax you pay can go to an Expense:Tax account.

Maybe I could have done the same in Quicken. The way the GNUCash budget is
> laid out that leapt out at me as a possibility, but I decided to start with
> what I knew from Quicken.


The budget subsystem of GNUCash shouldn't be your guide, as it's an
afterthought and not particularly great. You'll be much better off changing
your frame of reference to double entry accounting. There is a learning
curve, but the payoff is awesome, and the folks on this mailing list are
very knowledgeable and helpful.

You have control over the level of detail you want. So you might just think
of the RRSP account as a blob of money to which you make deposits. But as
you become more skilled with GnuCash you may find that breaking it down
into individual investments is more meaningful and generates more useful
reports. However, I suggest that you keep all old financial statements in
case you decide you want to go back and add more detail to your system at a
later date.

E

-- 
Edward Doolittle
Associate Professor of Mathematics
First Nations University of Canada
1 First Nations Way, Regina SK S4S 7K2

« Toutes les fois que je donne une place vacante, je fais cent mécontents
et un ingrat. »
-- Louis XIV, dans Voltaire, Le Siècle de Louis XIV, Chap. XXVI