Future allocated money vs Budgets

[Christopher Lam]

Hi Matt
I think there is merit in your idea.
I think some of the logic has already been baked into the Scheduled
Transactions (SX) facility.
So far, we know the transactions in the database are perfect for recording
*past* activity. Sometimes I'll also record transactions in the future e.g.
for upcoming tax payments. These appear under a blue line in the register,
and affects the Future Balance.

However *future* transactions are of the following types
(1) regular expected amounts eg monthly mortgage repayments, utility bills
(eg approx $200/qtr), annual land taxes (eg $1000/yr)
(2) regular budgeting (e.g. I can allocate 30% of my income towards income
tax, and every quarter will actually pay it)
(3) envelope budgeting (e.g. we can allocate $100 /month towards luxuries,
and any luxuries will need to be limited to $100/month, or $600/halfyear
holiday)
(4) long-term planning (e.g. in 15 years' time, my investment of $500/month
at approx 7%pa must reach $160,000)
(5) I must have a cash float of $5000 at hand for emergencies
(6) any other?

The SX is good at (1) and we can count future expenses with the Future
Scheduled Transactions Summary report, which aggregates all future SX
amounts in a time period.
(2) would be in my wishlist: set up formula "(CurrBalance of
Income:Paycheck * 0.3 - CurrBalance of Expense:IncomeTax)" is the expected
approximate tax liability.
(3) is also very popular and enforced by the likes of YNAB. No automated
mechanism within Gnucash. Can be done with the virtual accounts as
described.
 Another way is as follows - "Balance of Expenses:Luxuries must increase by
$100/month" please report its variance.
(4) is out of scope.
(5) is somewhat possible by enabling the "Future Minimum" column in the
main Account View, but doesn't take into account the SX amounts.

On 26 January 2018 at 11:29, 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:
> 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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