Future allocated money vs Budgets

Matt Graham matt_graham2001 at hotmail.com
Thu Jan 25 22:29:28 EST 2018


Hi All!
I’m going to discuss (and get people’s opinions) on a way in which many users (myself included) struggle to get “what they want” from GNUCash budgeting. GNUcash is very strict on proper double-entry bookkeeping practices (which I love). In accounting, “budgeting” means that you are plotting out exactly when you are going to change account values in what way. It is forecasting the future states of the accounts.

So if you have a monthly bill of $50 you need to pay – easy. You enter it into the monthly periods - both expense account and asset account. You know you will spend that amount, and you (usually) know what asset account you are spending it out of. This is budgeting, and allows you to see that you are not losing money overall and sending yourself broke by end of year.

The next thing that people call “budgeting” is when they want to save up for something, but don’t have a distinct plan of when it will be spent or how it will be paid for. My example is “Spending Money” (but perhaps “holiday savings” is a better example). I allocate $100 every month to myself and my wife to spend as we want (hobbies, clothes, etc). If we don’t spend it, it builds up allowing us to buy bigger stuff later. So I should put $100 in each budget period against those two expense accounts, right? NO, NO, NO!!!! From an accounting perspective, nothing is necessarily going to be spent out of my “Spending money” expense account. It is an allocation of money, not a spending of money. I can’t predict in advance any real changes to my asset or expense accounts from this monthly “allocation of money”. What I am doing from an accounting perspective is setting up a liability on myself – a promise to give money later to someone (in this case a promise to give money to myself). The reduction in my assets (cash) is as completely fake as the increase in liability – none of my cash or credit accounts have changed in value.

For now I’m going to call this application “Future allocated money”, and controversially say that it is NOT “budgeting”.

So if you have some ‘budget’ purpose such as this, and lament that GNUCash can’t give you the running total, the way to deal with it is the way this person describes:
http://allmybrain.com/2008/12/15/better-budgeting-with-gnucash/

The fake asset account is used to show the money that has been allocated for certain purposes in the future (ie is unavailable). It needs to be a fake account, because usually we don’t know in advanced which asset account we are going to spend the allocated money out of. If you know which asset account you are going to be spending the money out of, then sure you can just create a sub-account to record the amount allocated to this. In this case, you don’t really need to record the liability at all (the liability is effectively shown in your sub-account), and the transactions become easier – just transferring between that sub-account and the actual expense account when you spend. But for most people, you need a fake asset account because you don’t know in advance which account you will spend out of.

The fake liability account is your running amount you can spend at any time.

<b>The problem in doing this?</b>
It creates extra transactions that look really complicated. Allocating the money is one fake transaction involving the fake “asset budgeted” account and the “fake liability” account (and in the website they allocate money from a pay packet rather than periodically, so it involves the real income and real asset account too) . Spending money against a category affects the expense account, the asset account, the fake liability account, and the fake “asset budgeted” account... Looks confusing at first until your head gets around it.

<b>So how can we make all this easier on people?</b> (both to understand and then to implement)? It is a pretty common thing to do.
Perhaps having some way to mark an expense account as “future allocated money” based, and having the program automatically create the necessary fake liability and asset accounts? And perhaps any expenditure recorded against that expense account would be auto amended to include the effects on the fake liability and fake asset account?

I think I’m going to try all this for a few more months (and await your thoughts!) before coming up with a proposal.

Thanks and regards,

Matt


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