Here is a followup to a few questions that have come up since my GnuCash Budget post.
How much did I spend for this month?
I find the Cash Flow report useful for this question. (Reports->Income & Expense->Cash Flow). You need to customize the report a bit before you get the information you need though. 1st, change the date range to the period of time you’re interested in. 2nd, select any additional accounts you want included. By default, the report only includes expenses and asset (cash) accounts. You need to select any liability accounts (like credit cards) that you spend money from.
When you’ve set up the report, you get Money In and Money Out sections. The Money Out shows you not only how much each budget account spent, but also you can see which expense accounts you spent the money in.
This is a particular subtlety of this budget system that I really like. You don’t have to spend budget money from the same account as the expense. Example: I have my own personal budget but I use it to by items in many different expense accounts, e.g., movies, games, food, computers, etc. The report might look like this:
Budget: My budget: 100
Expense: Food 25
Expense: Movies 25
Expense: Computer 50
I do that exact thing all the time. We might buy a particular expense item but choose to take it out of our savings budget for instance.
Did I go over the budget this month?
This one is easy. There is not “this month” or “last month” in this budget system. You can choose to think of your budget that way, but I like to think of it as a continuous budget amount. Budgets increase when you increase them and decrease when you spend from them. For me, my budget increases when I earn income. That might be monthly, bi-weekly, and it may have occasional spikes. (Like we got our tax refund back, so I added the money from that to our budgets).
How much did I spend on food and transportation this month?
Just look at the Cash Flow report and find the category you’re interested in. Note that you can look at both the Expense (how much you spend on a certain thing.) and the Budget (how much you used from the budget.) They may be the same or they may be different depending on how you choose to record transactions.
How much was my net-income for the last quarter?
Since the budget balances to 0, it doesn’t affect your balance sheet. You can use the standard GnuCash balance sheet and asset reporting to figure out your income etc. One note though, I try to remember that my budget money will need to be spent at some point in the future.
Which area can I spend less and save more?
This one is pretty easy. Just look at your budget accounts in the main GnuCash window. Since you always see the current balance of your budget account, just look at which ones are positive and which ones are approaching zero (or heaven forbid you didn’t go negative did you?).
We transfer money between budgets too. Say I built up over a few months a few hundred extra dollars in my Auto:Fuel budget since gas prices have been low. I can decide to make a transfer from that budget to another one that perhaps we had some extra expense from.
Since writing my original post, I’ve only grown to like this system more and more. Feel free to post more questions/comments and I’ll do my best to answer.
Do you do some form of “closing of books” at the end of the year?
In accounting, it’s a normal practice to close your revenue and expenses. But this is personal finance so I don’t know if you do it…
Given that you have been using this software for a long time, do you do some sort of organization of transactions per year?
I haven’t found the need to do it, although I think I may test it out this year. I’d bet the GnuCash close books feature is good enough if someone wants to use it.
I’ve been thinking through how to best manage budgets for a while, too. To start out, I didn’t really budget, but just tracked my expenses. I am considering doing something similar to what you are doing (described in a previous article), but don’t really want to enter everything twice. What do you think of distributing from my income accounts to expense accounts as a credit (after zeroing those accounts by transferring existing balances to some other expense account)? Then each expense account will show (in red) whatever amount hasn’t been spent. Your thoughts?
Sounds like it’s worth a try. What I did is just make 3 or 4 categories, transfer in a balance, and then make some pretend transactions, all in a newly created account. After a while, I got it how I liked it.
With my method, entering the transactions twice is a pain, but I haven’t yet found a way I like it better. It’s very nice to always see how much money is in each budget.
Thanks, I agree that seeing how much money is in each budget is nice – if a person is really serious about it, it’s almost necessary.
Do you know enough about accounting to tell me what the down sides of playing with my expense categories this way might be? I’ve always been confused about the full picture of double entry bookkeeping. I don’t really want to shoot myself in the foot by doing a bunch of stupid entries to have to delete later…
The main idea behind double entry accounting is that your assets always equal your expenses+liabilities (income and equity are further special categories types within those).
So say you have an income of 100:
Assets goes to 100 and your income goes to 100.
100 = 100
Equation still balances
Now, you spend 20 on food.
Asset -= 20 and expense -= 20
80 = 80
So you want to put your income into budget accounts (or negative expense accounts)
So you get 100:
20/food + 80/everything else = 100
Do you move your expense accounts to the asset side? Probably not. Probably instead its:
0 = 100 – (20/food + 80/everything else).
Then you spend 20:
0 = 80 – (0/food + 80/everything else)
Only issue I see is it’s harder to see your account balances. You’re taking your assets out of the equation. In other words, it is going to be very hard to reconcile your checking account. Maybe with a little tweaking and renaming of accounts it might work though.
Hi! I have your website opened for some months now and I am always procastinating the decisiona to give your system a try. I think now is the time!
BUT, I’d like to ask: do you know (or can think of) any system (using GnuCash, of course) to have a clear picture of your budget let’s say at the end of the year? MSM has a Cash Forecast feature that takes into account every scheduled transaction plus your customary income/expenses and gives you a “forecast”. Can somebody think in a way of doing this in GC?
Thanks a lot! Now I’m going to create some categories to apply your budget system!
Nothing comes to mind. Just calculate how much you put in a budget each month and what you expect to spend each month.
Is there any way to reconcile the virtual budget accounts against the actual spendings? Having to enter double transactions is a source of error that I would like to be able to detect.
I noticed someone talking about zero-based budgeting, which might be a way to detect this, but I see one restriction here: It requires that any credit cards are placed in the Asset hierarchy next to any bank accounts and cash on hand. This is not too bad, since keeping credit cards at that level is justifiable due to the normally short-term nature of the liability.
Do you see any other possibilities for reconciling these virtual budget accounts against the actual spendings in GnuCash?
There isn’t a way to enforce the budget amounts are the same as the transaction amount. I guess that is both good and bad. We used the good side of it this way: Suppose we went to the store and bought some clothes and some food both. Half the transaction could come from the clothing budget and half from the food budget. Each time you enter a transaction you have to make sure you did the budget amount right though.
I’ll have to post an update to this. I’m doing a modified but more simple version of it now.
Please post an update! I’m enjoying this budgeting system. My only problem at the moment is figuring out how to make up shortfalls in budget categories in a reasonable way.
Say I overspend the grocery budget one week. No problem, because I have the money in my bank. Gnucash shows the negative balance of the “envelope” in red, which is nice. Now, what do I do to “bump up” that grocery amount to 0 before my next paycheck?
Sometimes I overspend and I _want_ to know that I overspent, so I might just leave it negative. But sometimes I need to bump it up for the next week.
You also said somewhere that your “Budgeted Cash” envelope has been moved to your “Budget” account instead of as a subaccount of your assets. What is the type of “Budgeted Cash”? Does it remain a “Cash” account?
Yes, I have been experimenting with this a bit, and the only way I have found is to use a strict zero-based budget, but this actually works pretty well.
There are too many situations that need special handling to do something automatic here. The best way I have found is to enter the Budgeted Cash amount first, since that should normally match a total on the receipt, and then I use the built-in matching to aid in splitting the amount, in case it covers multiple budget categories.
The best way of making up shortfalls is to transfer money from one or more accounts where you have under-spent, and use that to cover the negative. Perhaps you might even have a buffer account for this. Next time you add money to the budget, you might want to consider if the overspending was due to the budget amount being too low, or if it was a one-time anomaly. In the first case you want to adjust the amount for that account.
I also moved my budget to its own top-level hierarchy. I have the top-level account, as well as the “Budgeted Cash” account as asset accounts, and the budget categories are liabilities.
I run my budget zero-based, which means that all transfers in and out of my “Current Assets” hierarchy will be counted. This means that I have a checkpoint on my budget amounts, as the total of “Current Assets” and subaccounts must equal the amount in the “Budgeted Cash” account. Also note that since it is all in the same hierarchy, the top-level account will show a total of 0 always, since the budget categories and “Budgeted Cash” cancel each other out.
Note: Do not attempt to use this type of budget with multiple currencies. As the currencies change relative value every day, the totals will fluctuate, and make it impossible to use any of the easy checks for budget verification.
Check home page for another GnuCash Budget update.