I’ve been brain looping and just need some outside input. So I have sinking funds for various things- home repair, gifts, travel, etc. I also have a zero based budgeting sheet in Excel I’ve been using for years. Every month my income = bills, needs, wants, savings. However, if I’ve been saving up for a home repair project or plane ticket, I already have the money tucked away but list it as an expense which leads my total to become a negative. Previously I’ve always just left it as a negative, or if I really want to challenge myself, find extra income and bring it back to zero. Even if I account for the purchase for next month’s budget, I only make X amount per month so can’t divide a huge sum and expect my income to cover it. I think I have a couple of options here: A) List the transfer from savings as income so it zero’s out. Not truly income though. B) Keep it as a negative, knowing that I had enough to cover it. C) List it as a negative savings. Can’t think of any other options… What would you do?
I put savings for my sinking funds in a ‘rollover category’ in my budget. Month to month, I’m budgeting with the income received that month plus what I rolled over from last month.
Cameron said:
I put savings for my sinking funds in a ‘rollover category’ in my budget. Month to month, I’m budgeting with the income received that month plus what I rolled over from last month.
This makes sense.
Personally I do something similar and usually just don’t count that transaction in with the end result, treating it more like a ‘transfer’. Probably most similar to your option A.
I have a sinking funds/savings spreadsheet. This is where I put in where the money in my savings is going. The emergency savings is never touched unless there is an emergency but it shows how much is being added to each sinking fund each month and then when I hit a month I have to use it I just note it in that spreadsheet. Since it never affects that month’s budget I don’t note it on that sheet.
Do you have categories and amounts in your budget for these irregular things that you have sinking funds for? I just approximate what those expenses are over a year and divide it over 12 months. When the expense happens, you will be in the negative for that month but it will wash out over the year. You are just prepaying the expenses with your sinking funds.
Keep it as an expense going out but make the sinking fund a standalone bucket. So when your Home Repair sinking fund gets +$50 it shouldn’t even be a part of the zero budget equation. It should only show a -$50 expense out of your total budget. Then separately, you can have a Sinking Fund table that automatically increases with a basic sum function.
@Tory
Aha, so just leave them out of my budget completely. Ok that makes sense as I’ve already allocated buckets within Ally for the sinking funds. And obviously I can see my savings go down from there once I cover the cost.
I tag the expense with the budget category and also tag it as a savings withdrawal (not income). Every month; my Revenue (Income + Savings Withdrawal + Other Revenue) is balanced against Expenses…
I go with B in our household. Doing A is indeed double counting because you already had this as income. C is technically correct as savings are a balance sheet item. Let’s say I’ve saved up $5K for a renovation in March. I simply add the $5K as a planned bill for March. When I actually spend it, it may come to $4K or $6K, so I’ll record that as the cost (same thing when my electricity bill is higher or lower). My budgeted expenses will certainly exceed my income for that month, and that’s ok. And that is why we use B in our household. The change in your savings will show on your household balance sheet, which accurately reflects what happened.
@Harley
Yes, I do have a year-to-date net neg/pos so it will reflect there as well. Thanks, Dav!
Bryce said:
@Harley
Yes, I do have a year-to-date net neg/pos so it will reflect there as well. Thanks, Dav!
No worries. Good to hear you’re keeping something like a balance sheet. I think it’s important to do so. It was about 5 years before I started to do that, but my wife and I have been doing this now for about two years and it’s a great exercise. Always good to see the ‘why’ when budgeting, rather than just doing the ‘how’.
I either list the transfer as income (option A) or don’t track the transfer and purchase at all. This kinda depends on how much it costs, is it multiple purchases vs one, etc. If it’s multiple purchases, I’ll track it in a separate temporary sheet just to make sure everything zeroes out.
What is your interpretation of zero-based budgeting? I ask because it is budgeting every dollar into a purpose until every dollar you earn has a job. This is regardless of whether you spend it or not. Tracking income vs expenses is a way to catch overspending if it occurs too often, but that is cash flow. Always making sure you have more coming in than going out is positive cash flow, and higher expenses is negative cash flow. This helps you decide how you want to track. An example is, I contribute funds every month to sinking funds. When I need them, or want them I spend it knowing its purpose. This may mean that my normal expenses plus my sunk funds exceed my budget or income for the month. This may reflect negative cash flow. In the context of a month that may look bad. However, within a quarter or a year just a blip. If maintaining zero or a balanced view is important, this sounds like you may want to have a category or entry or something for money movement from account to spending. This is more akin to debits and credits in accounting. For me, I just make sure I budget, if I overspend a category I replenish it or move money from another category, but if my total expenses exceed the monthly income, I show the negative. This is because most of the time I have a surplus and I planned to spend the money. The negatives help me make sure I don’t have more negatives over time than positives. Try a few things out and stick with what makes sense for you. I constantly tweaked mine until I got it to run on autopilot. Be well.