Future allocated money vs Budgets

David T. sunfish62 at yahoo.com
Fri Jan 26 06:34:52 EST 2018


Adrien,

A small point: there is an option on the reconcile window to include subaccounts, so that should not pose a problem.

David

> On Jan 26, 2018, at 12:38 PM, Adrien Monteleone <adrien.monteleone at gmail.com> wrote:
> 
> The biggest problem with any of this is if the money is actually sitting in a bank account. Reconciling is a mess. (I don’t think you can reconcile a parent by considering the child accounts to ‘roll-up’)
> 
> This works best with physical cash you hold in your hand.
> 
> Technically, that cash is still a current asset because it’s liquid, but that’s up to you if you want to segregate it out.
> 
> I use the following:
> 
> Current Assets:Cash:Wallet
> Current Assets:Cash:Savings
> 
> I’ve tried several sub accounts of Savings, but it was just too messy when I had to move money around for other purposes than the savings were intended for.
> 
> One thing that might help is simplifying your splits.
> 
> I used to use the Savings account only for transfers in and out. I would then create separate transactions for the expenditures from Wallet with money either going back to Savings, or to Wallet.
> 
> But I found in many cases, I was really taking money out of Savings to spend directly for a purpose, so I stopped doing most of the out transfers to Wallet and just recorded the expense directly from the Savings account. (I prefer to always record outflows from the account they are flowing out of - easier to keep it straight) If there was any change or a left-over balance (say I broke a C-note for something) and didn’t put that back into my physical Savings location but in my wallet, then one of the splits would be to Wallet. (I’m meticulous and also have a Current Assets:Change account so it’s easy to ‘reconcile’ my physical cash in my wallet. This also lets me see how much is in my change jar if I want to cash it in. Yes, I even track quarters separately because I’m currently stuck with coin-laundry so I need to know at a glance if I have enough.)
> 
> Certainly, if you are allocating money from a checking account to savings held at home, don’t use a sub-account of checking. Use a sub-account of Cash, or create a same-level account like I did as Savings, or if you want that separate still, as ‘Allocated' with sub-accounts there for specific purposes. (I suppose even ‘Envelopes’ would work if you’re physically stuffing them, it’s up to each individual how they think of it)
> 
> I’m not sure where you’re going using the ‘Money Allocated’ account with respect to balancing it with its sub-accounts.
> 
> To me, the Money Allocated account (or whatever you call it) should likely be a placeholder account and never have any transactions in it. Everything happens in the subs.
> 
> If you want to allocate funds, you’re taking them from some other regular asset account like Checking or Cash. (or Savings if that’s a physical account at a bank) That’s the credit side. The debit side is the allocated sub-account.
> 
> So something like this:
> 
> Dr. Assets:Current Assets:Envelopes:Dining Out		$100
> 	Cr. Assets:Current Assets:Cash				$100
> 
> Cash is now less $100 and your Dining Out envelope has $100 in it.
> 
> When you go out to eat, I would save a transaction and just spend the money (which is physical cash) directly from the sub account.
> 
> Dr. Expenses:Food:Dining Out				$60
> 	Cr. Assets:Current Assets:Envelopes:Dining Out		$60
> 
> 
> A more ‘real world’ example might include holding the change in Cash instead of putting it back in your envelope stash location, thus:
> 
> Dr. Expenses:Food:Dining Out				$58
> Dr. Assets:Current Assets:Cash				$ 2
> 	Cr. Assets:Current Assets:Envelopes:Dining Out		$60
> 
> Looking over your last reply more I think I see where you’re ending up with extra transactions and splits. And while I know I said ‘accounts’ are just ‘reasons’ and not necessarily related to physical things, perhaps treating the allocated money as more of a physical asset would help.
> 
> It looks like you want to keep track of allocating money and ‘spending it’ out of that allocation as a separate ‘layer’ from the actual location of the funds and why they leave your hands, that is you want to record the transaction TWICE. That’s adding complexity that I don’t think is needed.
> 
> This is why the allocated sub-accounts belong under one or more regular asset accounts.
> 
> If the money physically is in your control, your wallet, a safe, a drawer of envelopes or such, I’d put the Allocated and Allocated:Subs like so for more regular and discretionary purposes:
> 
> Assets:Current Assets:Cash
> Assets:Current Assets:Cash:Allocated
> Assets:Current Assets:Cash:Allocated:Dining Out
> Assets:Current Assets:Cash:Allocated:Movies
> Assets:Current Assets:Cash:Allocated:Snacks
> Assets:Current Assets:Cash:Allocated:Groceries
> etc.
> 
> But if the funds really never leave your checking account until you spend them, or you regularly write checks/pay online for some purposes I’d use this:
> 
> Assets:Current Assets:Checking
> Assets:Current Assets:Checking:Allocated
> Assets:Current Assets:Checking:Allocated:Rent
> Assets:Current Assets:Checking:Allocated:Utilities
> Assets:Current Assets:Checking:Allocated:Loans
> Assets:Current Assets:Checking:Allocated:Insurance
> etc.
> 
> You might even put some of the Allocated subs under a credit union/savings account that is rarely touched for the less frequent purposes:
> 
> Assets:Current Assets:Credit Union
> Assets:Current Assets:Credit Union:Allocated
> Assets:Current Assets:Credit Union:Allocated:Charity
> Assets:Current Assets:Credit Union:Allocated:Gifts
> Assets:Current Assets:Credit Union:Allocated:Vacation
> 
> 
> You could alternately move ‘Allocated’ up one level if it has a separate physical location than your usual wallet/stash, or even drop it entirely and put the subs directly as children of their physical location you’ll likely be spending from.
> 
> Separating the subs according to from where you’re likely to spend their funds will help cut down on either inter-sub transfers, or as I’m about to show below, spending funds saved for one purpose for a different one.
> 
> In all cases, record the credit side of the transaction for any expense from where it actually comes from. As I mentioned, I don’t think transfers back to the Checking/Cash/Savings parents are necessary, just credit against the Allocated:Sub - you know where it physically was, and if the actual balance doesn’t go back to the sub - and goes to a different level account for other general expenses then include that as a split to save yourself a separate transfer transaction.
> 
> Having the subs under their respective ‘real world’ location where the funds reside also allows you to still maintain at least a glance look at how much is in that physical location. (Parents in the CoA include the balances of the child accounts) But these child accounts are problematic for reconciling as noted above when dealing with institutional accounts.
> 
> I’m considering re-implementing this for myself as subs of ‘Savings’ (or moving Savings to a sub of ‘Envelopes’) and instead of transferring money around for expenses not related to the sub’s purpose - just recording the expense there anyway. This way, I can see if there are any expenses in say Envelopes:Vacation that are for expense accounts OTHER than vacations, like Dining Out. That shouldn’t happen right? This would give an at a glance look to see why my vacation bucket is always shallow. This also gets an added advantage that now I can run a Cash Flow report using just one sub at a time. (and save the configuration) That will show me what accounts had money flow into that sub, and what expense accounts money flowed out of the sub for. That will be an eye opener I’m sure. All that, and no special report or functionality needed to be added by programmers.
> 
> My main hangup is duplicating the formula and triggers for the allocating that MoneyWell uses. (which is VERY convenient) I’ll still have to calculate that outside of GnuCash and use the result to enter a transaction. (or better yet, create the transaction in a spreadsheet and import it - perhaps I can script it and maybe even make it a mini-app with an Automator Workflow) The goal is to enter the receipt of funds - say a paycheck and then automatically allocate portions to different subs based on priority and if they are ‘full’ or not based on a savings goal.
> 
> If you have any other approach for figuring out amounts to allocate, I’m game for trying it.
> 
> Anyhow, those are my thoughts on the subject.
> 
> Thanks for starting the topic, it’s helped me consider tackling this again.
> 
> Regards,
> Adrien
> 
>> On Jan 26, 2018, at 12:22 AM, Matt Graham <matt_graham2001 at hotmail.com> wrote:
>> 
>> 😊 You beat me to the punch on a couple of things. Yes, I have the tendency to over-complicate. I think there needs to be a simple way to do what people want though...
>> 
>> I started plotting things out more and came to similar conclusions.
>> 
>> First, when I say “fake” I mean “not corresponding to physical money – cash, account balance etc”. You’re right, its bad terminology, and I like the way you think of accounts as just a “thing”.
>> 
>> Second, I have tried a number of other programs for my financial needs. All of them have various advantages and disadvantages. So with no clear winner, I thought I’d try to make GNUCash better...
>> 
>> “Categories” is a vague word and risks things getting complicated. Perhaps all of this allocation of money concept would work best if GNUCash introduced “categories” purely for allocation? Applications where we are allocating things on the side without actually changing our accounts? Lets keep that aside and see if it works once we agree on everything else – sounds complicated (and I cringe at adding a new ‘semi-account’ type).
>> 
>> Thinking about things further (and trying it) I agree 100% that liabilities aren’t involved. Allocating money to something decreases the amount of cash (agree with your term – LET “cash” = “liquid assets”), which would correspond to a decreased liability... Makes no sense having negative liabilities. My bad.
>> 
>> I tried fiddling with equity as you (tentatively) suggested too, but this didn’t really make sense either. You end up with negative equity accounts showing how much you have to spend...
>> 
>> So yes – I agree It is asset to asset... Decreasing cash available (asset) is balanced by increasing cash to spend on a purpose later (asset).
>> 
>> Creating a sub-account to your physical cash or bank account to track allocated money is only good if you are always going to spend out of that account. If I’m tracking my spending money from my bank account, but then spend out of my cash on spending money...
>> Dr increase Expense
>> Cr decrease physical cash I used to pay
>> Cr decrease the amount in that sub account – gets it out of that sub account....
>> Dr increase the amount in parent account – puts it back in the parent...
>> It works, I guess, but just seems weird transferring balance between the child and parent like this.
>> 
>> So they way I’m thinking of trialling is having a separate asset account “Allocated Assets” (separate from Current and Fixed assets). That way when allocating money the decrease (cr) in current assets (an account I’ve put as “Money Allocated”) is balanced by the increase (dr) in the specific “Allocated Assets”:”Spending Money” account.
>> Spending is the same as above, but the increase to make  “Money Allocated” less negative is balanced by the decrease in the relevant Allocated assets account....
>> 
>> Of course, all of this still means i’m entering four lines for one expenditure. The good news is that I only really have four accounts that involve allocated money like this (2 spending money, Holiday, and restaurant/café spending). Since all of this is a very common application for most personal users, I’m wondering if there is an easier way – “categories” defined against an expense account that just track how much you have “allocated” to that purpose? Would need both aspects – viewing “how much I have left” to spend for that purpose (budget line item?), but also ensuring “I have the money in my accounts to be able to buy it”. That all sounds too complicated – it would be easier to allow the user to tag an expense account, and have GNUCash automatically maintain the necessary “Allocated” asset accounts...
>> 
>> I don’t think I am overthinking too far though, purely because it seems like a common thing people want. Hence, solution required... Philosophy of accounting tells us that this kind of allocation is: double entry on Asset/Asset when allocating, two double entries (Asset/Expense and Asset/Asset) when spending.
>> 
>> Hmmm.... Same conclusion as before – I’m going to try it out for a while before suggesting any program changes...
>> 
>> Thanks and regards,
>> 
>> Matt
>> 
>> From: Adrien Monteleone
>> Sent: Friday, 26 January 2018 4:32 PM
>> To: GNU Cash User
>> Subject: Re: Future allocated money vs Budgets
>> 
>> Here’s my attempt to save you a few months…
>> 
>> I think you’re spinning wheels into something more complicated than it needs to be.
>> 
>> For starters, there’s no reason any liability account or expense account should enter the picture of ‘saving’ for any particular purpose. ‘Spending Money’ savings is NOT an expense. Why would anyone think to record it that way?
>> 
>> An expense is when you actually receive something of value and you owe someone else in exchange. (goods or services)
>> 
>> If you pay for those goods or services at the same time you receive them, you just record the expense.
>> 
>> If however, you receive the goods or services and then pay later - an accrued expense - then you use a liability account to track what you owe. (you still record the expense when you receive the goods or services)
>> 
>> If you pay for goods or services *before* receiving them, it’s not an expense yet. (a deferred expense) It’s a shift from one asset, likely 'cash', to another asset called 'prepaid expenses.’ (cash is generic for liquid assets, this includes checking and savings) When you actually use that asset, that is, either receive the service or the goods, then you record the expense. (you’d also do this for other assets you acquire and use up later - like supplies. Depreciation is an example of a deferred expense for special assets you paid up front for but use up slowly)
>> 
>> If however, you’ve not received any goods or services, and you don’t know if you actually will and haven’t yet paid for them, then expenses and liabilities aren’t even in the picture.
>> 
>> All you are doing is segregating assets for informational purposes. (the practice of ‘envelope budgeting’ fits this model) The only accounts involved are asset accounts.
>> 
>> They aren’t ‘fake’ any more than any other account in your books is fake. If by ‘fake’ you mean they don’t correspond to a real world account held at some institution then that goes for nearly all accounts in your ledger save a small handful. (unless you are quite the prolific banker, borrower, investor or credit spender)
>> 
>> The point of accounts is to track where money comes from and goes to. Some of those accounts *might* have real-world counterparts, but they are all no more ‘real’ or ‘fake’ than any other. Accounts are ‘reasons’, not physical things. (note, ‘account’ is not some special term. You have an ‘account’ at a bank, because they created one in their books to track the money you gave them. They have lots of other accounts on their books that don’t correspond like you think they do. Your ‘account’ at your bank is simply their ‘reason’ for having money that doesn’t belong to them.) I might draw the ire of those wanting to have GnuCash stand apart from Intuit products, but basically, your Chart of Accounts is just a Chart of Categories, Chart of Classifications, or Chart of Reasons to be more accurate. It is a system of classification. Don’t think even of ‘account’ as a thing, it’s a really a verb in this sense - you are ‘accounting’ for why something is or why it happened.
>> 
>> For the purpose of planning expenses, the GnuCash budgeting module can help. (certainly, it is limited and needs improvement)
>> 
>> For the purpose of putting money aside or segregating it so you don’t ‘accidentally’ spend it, that’s just financial discipline. Some people find that they can utilize sub-accounts or special savings/asset accounts for this purpose to ‘hide’ the money from themselves. This can cause a mess with reconciliation though.
>> 
>> Budgeting is the process of planning your expenses. Saving is the process of not spending. The two are not the same thing. (but certainly one influences the other)
>> 
>> Using sub-accounts or other asset accounts has the advantage of being able to see how much you’ve saved, but not how much you have left towards a goal. I suppose one could get creative with equity accounts in this regard, but it might be more work than necessary. (I hesitated to even mention it) Certainly a special set of ‘savings goals’ liability accounts could be used as well, but there again, this is confusing the issue of what a liability really is or isn’t. Your balance sheet would be all out of whack. (unless you don’t care)
>> 
>> With the envelope method, you aren’t creating liabilities by saving. (even negative liabilities!) You’re just taking some of your assets and putting them inside envelopes. Those are still assets. They don’t change their nature because of the envelope. You don’t suddenly have this not-quite nefarious non-expense or imaginary negative debt. You just separated your cash to keep it out of your wallet so you can pay your bills, buy gifts, make charitable donations, or have a small savings to cover emergencies instead of splurging on impulse buys or going out to dinner instead of cooking.
>> 
>> What you have are assets that you want to earmark, at least temporarily and not even by hard and fast rule necessarily. You really don’t *owe* that money to anyone.
>> 
>> So I would just use asset accounts.
>> 
>> No extra complicated transactions. No contra-balanced liabilities. Your assets are always correct. Your liabilities are always correct. You only become confused as how complicated you make the process. (how many ‘envelope’ asset sub-accounts you create and where you put them)
>> 
>> I’m also probably going to draw ire by suggesting another software package as a better fit for this purpose. (at least at this stage of GnuCash development) Certainly, some people have managed to finagle an ‘envelope’ method using special accounts in combination with either manual or scheduled transactions. (which are somewhat limited for the purpose) Most likely, if you really want to stick with GnuCash, you’d have to set up a spreadsheet to handle the envelope part, at least the calculations as to how much to segregate at each opportunity and keep track of any goals.
>> 
>> But I’d proffer that something along the lines of MoneyWell is more suited to the task, especially for those who live from a checking account. As far as I know it’s Mac only however. (there are mobile versions, but I don’t think they are stand-alone) For those who handle a fair amount of cash, or want to track investments and asset values, or need to track A/P and A/R, GnuCash is better suited. MoneyWell was designed specifically to implement the envelope method (using ‘buckets’) to automatically ‘flow’ money you receive to targeted purposes such as your utilities, rent, car, savings, etc. I’ve played with it quite a bit, and I’d like GnuCash to have something similar, but I find it too limited for all my other accounting purposes. If there were a way to get transactions in and out easily, I might use it for daily purposes and budgeting and keep GnuCash for the overall big picture stuff.
>> 
>> Regards,
>> Adrien
>> 
>>> On Jan 25, 2018, at 9:29 PM, Matt Graham <matt_graham2001 at hotmail.com> wrote:
>>> 
>>> 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:
>>> https://nam01.safelinks.protection.outlook.com/?url=http%3A%2F%2Fallmybrain.com%2F2008%2F12%2F15%2Fbetter-budgeting-with-gnucash%2F&data=02%7C01%7C%7C2d1add0a2c6a4643591d08d5647e306d%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C636525415498305568&sdata=s61s%2FSFcqv5L1C0v2xEma0%2BbaPC4eQl2EyPXGHLgTcc%3D&reserved=0
>>> 
>>> 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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