Cookie Jar Accounting question ...


M

MostlyH2O

Hi Folks,

I have an expense which occurs irregularly - maybe once every 2-3 months. I
want to budget for this expense every month by setting aside some money into
a "savings goal" account.

I set up an automatic transaction to transfer $40 from my Checking to my
Savings account. Then, I have another transaction that transfers that $40
from my Savings account to my "savings goal" (cookie jar) account.

Here are my questions:

-- Is there a way to combine these 2 transactions into a single "batch" of
transactions? Or do I have to make each transfer individually?

-- Is this a good way to budget for an irregular expense? What if this
savings is for something mundane, like Pet Food. I might spend $40 when
every 2 months, but I need to budget $20 each month to cover it. If I budget
$20/month, I'll be $20 under budget on the first month - and $20 over budget
on the month that I spend the $40.

I could set the budget item to occur every 2 months, but my expense doesn't
necessarily occur that regularly. Sometimes I won't need pet food 'till the
3rd month. This would mess up my budget.

So, the solution *seems* to be using the "savings goal" accounts. Every
month, I put in the budgeted amount, and I spend it whenever I need to -
without getting red numbers in my budget. It's just more accounting work,
because I have to transfer the money back to the bank account when I spend
it.

Is this a sensible way to budget/account for this type of expense, or is it
overkill to make a separate account for "pet food"?

Thanks very much,

Jack Coletti
St. Petersburg, FL
 
D

Dick Weaver

MostlyH2O said:
Hi Folks,

I have an expense which occurs irregularly - maybe once every 2-3 months. I
want to budget for this expense every month by setting aside some money into
a "savings goal" account.
[snip]...
-- Is there a way to combine these 2 transactions into a single "batch" of
transactions? Or do I have to make each transfer individually?

-- Is this a good way to budget for an irregular expense? What if this
savings is for something mundane, like Pet Food. I might spend $40 when
every 2 months, but I need to budget $20 each month to cover it. If I budget
$20/month, I'll be $20 under budget on the first month - and $20 over budget
on the month that I spend the $40.

I could set the budget item to occur every 2 months, but my expense doesn't
necessarily occur that regularly. Sometimes I won't need pet food 'till the
3rd month. This would mess up my budget.

So, the solution *seems* to be using the "savings goal" accounts. Every
month, I put in the budgeted amount, and I spend it whenever I need to -
without getting red numbers in my budget. It's just more accounting work,
because I have to transfer the money back to the bank account when I spend
it.

Is this a sensible way to budget/account for this type of expense, or is it
overkill to make a separate account for "pet food"?
K.I.S.S.

A budget is a tool that you use, NOT a tool that uses you.

An irregular expense that you budget an average amount for each month
DOES NOT mess up your budget. It is your budget and you know what is
going on, red numbers are a mathematical result, not a crime.

A separate category (not account) for pet (vet bills and food) is fine.
I have a number such categories as subcategories of the category
"RecSocEd" (recreation, social, education - I can't actually tell one
from the other).

But I budget the RecSocEd category, not the subcategories. That budget
lets me monitor spending - only if that category is significantly off
budget need I look at the subcategory detail.

dick w

(and "savings goals" are a bad idea - people who think they need them
are the very people who can't afford to use them; people who can afford
them don't need them)
 
Ad

Advertisements

M

MostlyH2O

But I budget the RecSocEd category, not the subcategories. That budget
lets me monitor spending - only if that category is significantly off
budget need I look at the subcategory detail.
Thanks! That makes much more sense.
(and "savings goals" are a bad idea - people who think they need them
are the very people who can't afford to use them; people who can afford
them don't need them)
I'd love to hear more about this. Could you explain why you think this is
the case?

I appreciate your help.

Jack
 
M

MostlyH2O

(and "savings goals" are a bad idea - people who think they need them
are the very people who can't afford to use them; people who can afford
them don't need them)
Ok - I found some of your previous posts on this topic. Thanks :)

Jack
 
D

Dick Weaver

MostlyH2O said:
[snip]...
(and "savings goals" are a bad idea - people who think they need them
are the very people who can't afford to use them; people who can afford
them don't need them)
I'd love to hear more about this. Could you explain why you think this is
the case?
From an earlier post, with a few edits ---------

There are other problems when using Quicken savings goals. Consider the
following two examples (we will ignore cash flow considerations,
considering only the accumulation of balances in the savings goals)

In the first case, there are two goals, both for $10 over 10 months, and
the months overlap somewhat (goal 1 was started 4 months ago and we are
now adding goal 2):
month 1 2 3 4 5 6 7 8 9 10 11 12 13 14
goal-1 1 1 1 1 1 1 1 1 1 1
goal-2 1 1 1 1 1 1 1 1 1 1

What's wrong with that? Look at the total balance for the two plans:

1 2 3 4 6 8 10 12 14 16 7 8 9 10

We had 10 saved in the 7th month, but the savings goal of 10 wasn't
reached until month 10. If the goal was needed, we could have bought
whatever it was three months earlier. ==> When there are multiple
goals,
Quicken savings goals delay the reaching of some goals. <==

In the second example, there is $12 goal for 6 months and a 12 goal for
12 months, both started at the same time:
month 1 2 3 4 5 6 7 8 9 10 11 12
goal-1 2 2 2 2 2 2
goal-2 1 1 1 1 1 1 1 1 1 1 1 1

As before, the $12 goal is reached earlier, but there is another problem
with savings goals. Here is an alternate savings plan for the same two
goals:
month 1 2 3 4 5 6 7 8 9 10 11 12
goal-1 2 2 2 2 2 2
goal-2 2 2 2 2 2 2

Both plans reach the same goals, the difference is in how much is
required to fund the goals each month.

Quicken total/mo 3 3 3 3 3 3 1 1 1 1 1 1
Alt. total/mo 2 2 2 2 2 2 2 2 2 2 2 2

==> Savings goals "front load", when multiple goals are used, higher
than
necessary savings are required in early months.<== Again, it's
unfortunate
that those using savings goals, those with "tight" money", have a
facility promoted to them that only makes matters worse.

---------------------------------------------------------
Here is more from that same post. It's looking at what I'll call
"committed" cash flow - money that you plan to spend/save (not money
going towards investments). Looking at this persons plan for a year,
it includes $100/mo to savings, similar to Quicken's savings goals -
a constant amount/month, and we'll see that even that is a bad idea.
(the constant amount could also be a credit card debt reduction plan
and it would still be the same bad idea!).

It's like this: you don't optimize your car's gas milage by taking the
spare tire out of the trunk. When a system has multiple variables, your
finances or your car, an optimum is known to be obtained only when
considering all of the variables. Constant dollars/month for some
dedicated purpose is likely optimal for someone only when the sum of
each months expenses is approximately constant.

dick w

The following cash flow plan (tutorial, not realistic) shows cash flow
by month, beginning with an 1800 balance (the necessary amount for this
plan so that no month has a negative balance) and ending, 12 months
later, with an 1800 balance - ready for the next year's cycle.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Begin bal 1800
Income 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100
FICA 20 20 20 20 20 20 20 20 10
Auto Ins 500 700
Property Tax 2800
Home Insurance 1000
Vacation 1000
Utilities 180 180 80 30 30 30 30 80 90 100 100 100
Car loan Prin 100 100 100 100 100 100 100 100 100 100 100 100
Food,clothes..300 300 300 300 300 300 300 300 300 300 300 300

Exp&PP total 600 600 500 3250 450 1450 1950 500 500 1200 500 500

To Saving 100 100 100 100 100 100 100 100 100 100 100 100

Balance 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

From here on, we'll use only the total Exp&PP, not the detail lines.

Lets revise "To Saving". Our heuristic: begin with a month following a
zero balance, take the entire balance-forward to savings (until the 1200
is reached), then proceed to the next month. When a months balance goes
negative, reduce the most recent "To Saving" so that the months balance
is zero, not negative. Then continue with the heuristic. That gives:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Begin bal 1100
Income 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100
Exp&PP total 600 600 500 3250 450 1450 1950 500 500 1200 500 500
To Saving 0 0 0 0 0 0 0 600 500 0 100 0
Balance 1800 2300 2900 550 1200 850 0 0 100 0 500 1100

Here, for easy comparison, are the ending balances from above when
100/mo was moved to savings.

Bal.(100/mo) 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

With the revised cash flow plan, every month has a lower balance. Where
did that money go? Looking at the two plans you might think the revised
plan delayed the transfers to the savings account, in fact the revised
plan accelerated the transfers. ==> Balances are reduced, money is
transferred sooner because the revised plan does not need to accumulate
as large a balance for the peak, Apr-Jul, months. <==

----------------------------------
 
Ad

Advertisements

M

MostlyH2O

Dick,

Thanks for taking the time to repost everything. You have given me a lot to
think about.

clear skies,
Jack
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads

Cookies 0
Quicken and Flash cookies 0
DiscoverCard no longer storing Name&Password cookies? 10
How can I restore a cookie file in IE for msn money watchlist 0
USA Question about expenses 2
USA Accounting Software Evaluation 3
UK Debtor Accounts 1
USA Careers in Accounting 1

Top