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.