Savings Funds at Month End Roll-over

A short video on how MoneyPlan handles Savings Funds as the month rolls over.

Unlike expense categories that reset to zero each at the beginning of each month, Savings Funds grow with each new month.

My Story, and how MoneyPlan came about

I created MoneyPlan shortly after I bought my first home in November of 2011.  But that's not really where the story starts, so lets rewind another several years earlier.

At 19, while still living with Mom and Dad, working full time and pursuing my dream of becoming a pilot, I attended a session on budgeting put on by my pastor.  Aside from his pastoral zeal, he also had a passion for teaching people how to handle his money well.  While it was new to me at the time, his system was simple and probably familiar to a lot of people:  Divide your income into categories by percentage, and record all of your spending in a notebook.  Spend within the amount available in your categories.  That was the gist of it.  Quick and dirty.

Well I really liked the idea of being in control of my money and handling it wisely.  So I gave my pastor's system a shot.  It lasted all of maybe 3 weeks before I gave up.  In my view there were some fundamental flaws in his system, at least as it applied to me.

1. It was a lot of work to manually write down everything I spent, and then manually do the math to see how much I had left in the budget.

2. Dividing my income by percentage was problematic for me considering I had a variable income.  I worked in construction at the time and the hours I worked were never consistent, so dividing my pay-cheques up by a percentage would often mean I was short in some categories, or had way too much allocated in others.  It would then take a significant amount of time to sit down and move money between categories to fix things.

3. And finally I was still living at home, so the majority of my money was only going into a couple things: Flying lessons, and paying for the expenses related to my car.  The budget system was a lot of work for my simple financial life at the time.

So I stopped budgeting.  I did what most people do: Spend money if/when I had it in the bank.  I didn't plan, and I didn't track.  That works fine when you don't have a credit card and you don't have a lot of different bills and expenses to manage.  All I had to worry about was putting gas in my car, fixing it when it broke, and paying for flying lessons.  Life was simple.

Fast forward a couple years.  I had now moved away to the Niagara region to work at a flight school, chasing my dream of being a pilot.  I now had my own apartment, a credit card, my own bills to pay, and was basically living financially on my own - like an adult.  But I still used my old method money management:  Spend when I wanted/needed to.  No plan, no tracking.  Well I got by, barely - until I lost my job.  The part time job in construction that I found wasn't enough to cover the bills.  But I didn't realize it because I wasn't tracking my spending.  Slowly but surely the balance on my credit card creeped up.  I was getting more and more in debt but I didn't realize it.  Soon enough both my cards were maxed out!  I was broke, six grand in credit card debt, and it hit me like a brick wall because I wasn't paying attention.

Well finally about that time I managed to land my first real pilot job.  It was a remote part of Northern Ontario, and it didn't pay much at all, but it was enough to slowly start paying down my debt.  It was at this point that I started to "sort of" budget.  My employers covered my housing, and I didn't need a car in the small town, so my living expenses were once again minimal.  I knew my priority was to pay down my debt, so each paycheque I set aside a portion for groceries for the month, a very small amount for discretionary spending, and the rest I would pour into debt repayment.  That's a budget in its simplest form.  At least I was starting to plan, but still not much tracking.  Through pure dedication and sacrifice, I was able to pay down my debt in just over six months.

Fast forward again to November 2011.  By now I had been working as a pilot at a new job for a couple years, was now debt free, and had been saving for a down-payment on my first house.  I took the plunge, and by the end of November I had the keys in hand. It was at this point that I knew things would get much more complicated.  I would now have tons of new bills coming in that I would have to plan for and keep track of:  Mortgage, condo fees, several different utilities, and all the other expenses life brings.  My pilot job was once again a variable income, so I was nervous about being able to cover my expenses during the slow months.  By now I was wiser to the fact that debt can creep up on you, and I wasn't about to let it happen now that I had the responsibility of home ownership.

Especially as a brand new home-owner  I knew I didn't really have a good idea of how much a house is ACTUALLY going to cost me.  All those extra expenses like property taxes, home repairs, insurance, and a long list of utilities were still all a mystery to me.  Additionally I wasn't known for being very well organized.  Often times in the past I would forget to pay bills, or would bounce cheques because I forgot to make sure I had enough money in my chequing account.  Knowing the number of bills I would have to keep track of was about to triple, and remembering the hard lessons I learned about getting into debt, I decided to commit to tracking all of my spending for one full year.  Drawing from the knowledge of my pastor's system I built a spreadsheet which included a place to track each purchase by category, as well as a little chart indicating which bill was due when and for how much.  Now I was planning and tracking.  I was on the right track.

The spreadsheet was a little easier than writing things down on paper like my pastor's method, but it didn't take long for me to realize that a spreadsheet was still a clumsy way of doing things.  Computer programming is a hobby of mine, so partly for fun but mostly because I knew I could make something way better than a spreadsheet, I began creating a dedicated budget management program.

And here enters MoneyPlan (I know the name is terrible, I'm open to suggestions!).  In less than a month I had a very limited and bug-ridden version that I began to use.  Slowly but surely however I made improvements, fixed bugs, and added features as I learned from my own usage.  EVERY feature contained in MoneyPlan is a result of me doing real-life budgeting with it and thinking, "hey it would be really great if..."  Necessity is the mother of invention!  Today I have what I think is a fantastic piece of software (and I may be biased) and I'm sure other's can make use of it.  I've been using MoneyPlan now for well over a year, and it has honestly changed the way I handle my money for the better.  It is especially well designed for those with a variable income (like me), has a great interface for quickly logging transactions, powerful features for sorting, filtering, and graphing your data, and is a great tool for helping you meet your savings goals!  Because of MoneyPlan I have total control of my finances.  I now have less stress and MORE freedom because I have a plan, and when I spend money I know I can afford it.  I'm also able to stretch my money further because I have awareness of where my money is going, which drastically cuts down on frivolous spending.  Life is better with a plan.

Budget Principles – The Finer Points

Basic Purpose

The entire idea being keeping a budget is to know where you are spending your money.  If you stay in the loop as to where your money is going, you’re able to make better informed decisions when purchasing things.  You will be far less likely to spend your way into debt, or if you are already in debt, having a budget will allow you to make a plan to get out of debt.

You will be better equipped to deal with large unexpected expenses because you’ll already have a system in place to deal with them, which lowers your stress levels when dealing with financial issues.

You will save money!  Having and sticking to a budget allows you to streamline your finances.  You will have a plan with how to spend your money so you will spend less on needless expenses like bank service charges, late fees, overdraught charges and credit card interest.  In general tracking your spending will open your eyes to many needless purchases you may be in the habit of making, and allow you make better use of your money.  It will also allow you to spend money guilt free when the time calls to do so, because you’ll know that you can afford it.

Keeping a budget requires two main things:  A means for creating your spending plan – ie. Making your Budget, and secondly it requires a means to track all of your transactions (purchases) and dedication to recording every purchase on a daily basis.  Recording each transaction you make is what turns most people off from keeping a budget – it can seem tedious and time consuming, but it’s the key to being able to look back and see how you’ve spent your money.  MoneyPlan makes the transaction logging as quick and painless as possible, and only takes a minute or two each day, and is WELL worth making it a habit.

The main idea behind how MoneyPlan in particular operates is that it keeps track of how much money you have to spend for each category, regardless of where that money is physically.  At your bank you may have a high interest savings account with $2000 in it, a separate chequing account with $500 in it, and maybe you also have $100 in your wallet.  The balance MoneyPlan reflects would equal the sum of all of these accounts - $2600.  MoneyPlan won’t keep track of where you keep your money.  That is ultimately something that is not important to budgeting, so in order to keep MoneyPlan simple and easy to use, we’ve left that up to you.

Being Intentional

One of the most important principles to follow when you’re budgeting is to be intentional about every dollar.  The way this materializes on a budget, is that the amount you account for your expenses and savings each month should be equal to your monthly income.  Simply put your budget should balance.  If you have accounted for all of your monthly expenses and it comes out to be LESS than you make for that month – that’s great!  But don’t just let that surplus float around aimlessly.  Now is the time to put it work towards some sort of specific savings.

Likewise the most important thing you can do when you put money away for savings is to be intentional about it.  Each dollar you put away should be going towards saving for a specific purpose.  Put away a small amount each month for vacation, for buying a new car, large purchases that you might want in the future, etc.  It’s very difficult to plan ahead and be aware of whether or not you can afford certain things when your savings are all lumped together into a giant pool with a nebulous purpose.

Designing Your Budget

In MoneyPlan there are two different ways you will be using to allocate funds, Expenses and Savings Funds.  Both are handled a little differently in MoneyPlan.  Expenses are things like your mortgage payment or rent, utility bills, as well as monthly allowances for things like gasoline, or groceries - anything that you pay for on a regular and predictable basis every month.  Savings Funds is a way to set aside a certain amount of money each month in order to plan for a large expense at some point in the future, such as a new car, vacation, or some sort of bill that comes irregularly (for example if you pay car insurance every 3 months).

Similar expenses are grouped into Categories, for example you might include your car payments, car insurance, and gasoline all into a Category called Transportation, and then in a separate Category labeled Food, you would include expenses like groceries for the month and an allowance for eating out.  MoneyPlan allows users to create as many or as few categories as they like, but we recommend keeping around 6-10 major categories.  The more categories you have, the more specifically you can analyze your spending, however it also becomes more complicated to manage.  You have to find the balance that works best for you.  Below is a sample list of categories one might think about using:

Housing

Utilities

Transportation

Food

Recreational Spending

Miscellaneous

Savings Funds in MoneyPlan are created separately from the budget itself.  You can create as many Savings Funds as you like, and MoneyPlan will keep track of the balances.  Savings Funds only need to be added to your budget plan if you intend on setting aside a certain amount from your income each month to grow it.  You can still keep Savings Fund that are off-budget, in which case the balances in these accounts won’t be contributed to on a monthly basis.

When you record a transaction you will specify what Category or Savings Fund to post the transaction to.  MoneyPlan will keep track of your total spending for each Category and each Savings Fund, as well as show you how much money each month you have budgeted for each Category.  The key to staying within your budget is to not spend more than you’ve budgeted for in each Category.

As we all know, sometimes despite our best efforts we will spend more money than we intend to, and go over budget in a certain category.  That’s ok.  This is where MoneyPlan’s flexibility really shines.  If you do go over budget, MoneyPlan will make sure you know about it, but unlike other zero-based budget software, it won’t MAKE you do anything about it.  How you correct your overspending is up to you, and you have a number of options:  If you anticipate that this overspending is going to be a regular thing month-to-month you may want to go in and increase the amount you have budgeted for that category by decreasing the amount from another category.  Or you may want to leave your budget it as is – a little overspending here and there is ok as long as you underspend in another category.  Each new month you get to start fresh – that is as far as categories are concerned, MoneyPlan doesn’t remember overspending or under-spending from the previous month.  If overall you spent less than the total you budgeted for, good for you!  Your overall balance (or net worth) will grow.  It is important to understand however that if you spend MORE than you budgeted for you are living beyond your means.  While it is okay for this to happen once in a while, if you are constantly living beyond your means more often than not you will very quickly find yourself in debt.

Balance and ‘Available to Spend’

You will notice that MoneyPlan keeps track of two different balances, one is called “Balance”, the other is called “Available to Spend”.  Balance is the total amount of physical money that you have – cash in your wallet and money in the bank are all included in this. “ Available to Spend” is your Balance minus what you have allocated in your MoneyPlan Savings Fund and minus what you’re going to contribute to your Savings Funds at the end of this month.  It is the amount you have available to spend on the expenses in your budget.  For example, let’s say you have $500 in cash in your wallet, and $2000 sitting in the bank.  Your MoneyPlan “Balance” will equal $2500.  Of that, maybe you have a MoneyPlan Savings Fund set up for a vacation, and you have allocated $400 into it, and you will be contributing another $100 into it at the end of the month.  This means your “Available to Spend” is equal to $2000.

A great way to know mid-month if your spending is on track, is to look in the top left of the Transaction Log screen and make note of the “Unspent Budget” amount.  Simply put, this is equal to the total amount of your budget, minus what you’ve already spent.  So if your spending stays as planned, this is how much MORE you’ll spend between now and the end of the month.  Now take a look at your “Available to Spend” amount.  Is it less than the Unspent Budget amount?  If so, you’re going to be spending more than you have by the end of the month.  The only exception would be if you have another paycheque coming in this month that hasn’t been logged yet, because that will boost your Available to Spend.

Unspent Budget = Your Budget minus what you've already spent

Available to Spend = The cash you have available to spend on monthly expenses

Final Thoughts

Ultimately the key to a stress-free financial life is to follow these points:

1. Be intentional about all of your money, don’t let surplus float around, and save for specific purposes.
2. Stick to your budget as best you can, but don’t stress over small overages as long as you’re generally spending less than you earn.  Make adjustments to the budget as needed.
3. Be committed to tracking ALL of your spending so you know if you’re sticking to your budget

Expense Categories and Savings Funds

In MoneyPlan there are two different ways you will be allocating your money:  Expense Categories and Savings Funds.  Both are handled a little differently in MoneyPlan.  Expenses are things like your mortgage payment or rent, utility bills, as well as regular day to day purchases like gasoline or groceries - anything that you pay for on a regular basis every month.  Savings Funds on the other hand are for setting aside a certain amount of money each month in order to plan for a large expense at some point in the future.  This could be something predictable like a bill that comes only once a year, or for something such as a new car, vacation.  Everywhere in MoneyPlan, Expense Categories always appear as ORANGE, and Savings Funds appear as GREEN.

Monthly Expense Categories and Savings Funds on the Category Totals chart on the Transaction Log screen

Similar expenses are grouped into categories, for example you might include your car payments, car insurance, and gasoline all into a category called Transportation, and then in a separate category labelled Food, you would include expenses like groceries for the month and an allowance for eating out.  MoneyPlan allows users to create as many or as few categories as they like, but we recommend keeping around 6-10 major categories.  The more categories you have, the more specifically you can analyze your spending, however it also becomes more complicated to manage.  You have to find the balance that works best for you.  Expense categories are specific to each separate budget you create, meaning you could have one budget for the summer time which contains a whole different set of categories than your other budget for the winter time.

If you picture all the money you have available to you (in the bank and in your wallet) as a pile of cash, that would be what MoneyPlan calls your Total Balance.  A Savings Fund is like taking a portion of your Total Balance and keeping it in a sub pile.  After all your Savings Funds have taken their share to set aside for the purpose that's intended, what you have left is what's called your "Available to Spend".  This is the cash you have left for the month to use for your monthly expenses.

Your Available to Spend is what's left from your Total Balance after each Savings Fund has
 been accounted for, AS WELL as the month's contribution  to each Savings Fund

Savings Funds in MoneyPlan are created separately from the budget itself, which means that they always stay the same even when you switch between different budgets.  The reason for this is usually savings are a little more longer term, which means they probably won't change much as you switch back and forth between different budgets.  You can create as many Savings Funds as you like, and MoneyPlan will keep track of the balances.  Savings Fund only need to be added to your budget plan if you intend on setting aside a certain amount from your income each month to grow it.  You can still keep Savings Accounts that are off-budget, in which case the balances in these accounts won’t be contributed to on a monthly basis.

Let's look at some examples for different Savings Funds you might want to have.  Let's say you have a home insurance bill of $600 that comes due once every year.  This isn't something that you're going to spend money on every month, so its easy to forget about, until the bill comes and then your whole budget for that month is thrown out of whack.  In this case it would make sense to create a Savings Fund and contribute $50 each month to it for the whole year.  Then on the month that the bill comes, you just pay it out of your "Home Insurance" Savings Fund, and everything continues as normal.

Another great idea for Savings Funds is to use them to accumulate money for irregular expenses that AREN'T so predictable, like car repairs.  You never really know when your car is going to break down, but when it does, the bill is usually a doozey!  So we can create a Savings Fund called "Car Repairs", and contribute a little bit each month to it (depending on how old your car is!), and then when repairs happen you just dip into the Savings Fund and pay for the repair.  At the beginning it can be a little difficult to guess specifically how much you need to put away each month, but after you've been tracking your spending for a while, you'll get a pretty good idea.  MoneyPlan also has some great tools, like the Asset Management feature to chart the average cost/month of assets like your car and help you figure it out!

Don't forget to create some fun Savings Funds to save for things you want, like vacations!  It can be really satisfying to see your vacation fund grow bit by bit over the year, and it totally takes away the stress and guilt of spending on your vacation when you KNOW you can afford it, because you've been saving for it specifically.  This is a far better option than putting the vacation on your credit card with no real plan on how you're going to pay it back.

If you haven't already, check out Video Tutorial #1 to learn how to create Savings Funds and Expense Categories in MoneyPlan.

Including all your expenses in your budget

Its important however when you're first setting up your budget to try and account for as many expenses as you can think of.  Its not very much fun when you've allocated all your funds out to all your categories and then you find you forgot to account for some expense that you never thought of.

Below is a great list of several expenses that may apply to you... did you forget any on your list?

Housing

Mortgage

Property Taxes

Condo Fees

Rent

Utilitites

Hydro/Electricity

Natural Gas

Water

Furnace Payments/Rental

Water Heater Payments/Rental

Cable/Satellite TV

Internet

Home Phone

Cellphones

Food

Groceries

Eating Out

Pet Food

Transportation

Car Payments

Car Insurance

Gasoline

Transit Passes

Parking

Vehicle Maintenance

Miscellaneous

Clothing

Gifts

Charity

Household Supplies

Union Dues

Childcare

Debt Repayment

Investment Contributions
Medical

Other

Recreational

Entertainment

Hobby Costs

Club Dues

Sports Dues

Fitness Membership Dues

Savings

Emergency Fund

Vacation

New Car

Home Improvement/Maintenance

Large Items (furniture, electronics, etc.)