Home Budget Tutorial

In Summary Home Budget is like an envelope (double entry) system where each expense account is like a "virtual" account that allocates money from the pool of funds (your bank accounts). You then spend from these accounts.

There are always two accounts involved, usually one represents a real account such as a checking, savings, or credit card, while the other is the "envelope" or virtual account that reserves the money (or "Budgets") for expenses. These are the "Expense" accounts.

This simple tutorial takes 5 mins to try and helps you understand how the Envelope system works.

To get started create a new database under Home Budget using the File menu select "New", and the filename of "Tutorial" and then use the New Account Wizard to create four accounts. Choose the type of account as listed below:

  • A Income account called "Income"
  • A Bank account called "Bank"
  • A Credit card account called "Visa"
  • An expense account called Groceries

Leave the starting balances at zero for the purpose of this exercise and take the defaults for the starting dates.

When you are completed creating the four accounts proceed to the Budget window which will open when you push finish (or can also be found under the Setup menu).

Double Click on the grocery expense account and modify its amount to budget 400 per month. 

Now assuming you get paid via direct deposit to your Bank account from your employer. You record this transaction showing that amount being deposited into you "Bank" account and crediting your "Income" account. Create a transaction to credit the Bank account by $1000. Note: the income account does not really hold any money it just records these funds for reporting purposes. 

To enter a Transaction you press the left most button on the tool bar. Use the TAB key or Enter key to progress along the line and press Enter to complete the transaction and save the information. To abort a transaction at anytime press the <Esc> key.

If you look at the NetWorth window now, you will see the total cash on hand (your "Bank" account). It then subtracts the "allocations" (currently zero) to show you the total "Unallocated cash".

Now open the Budget window under the Setup menu and click on Do Budget and a transaction will be created in the Groceries account. Go to the groceries account and have a look at it there. You will notice that groceries has a balance of $400. This is like having a envelope set aside with $400 in it, that you will use to pay for groceries. (This money has been reserved for grocery spending.)

If you look at the Unallocated cash, it will now show $600. As it as subtracted the total of all the expense accounts or "envelopes of money" from the Total Cash on hand (or total of all your Bank accounts).

Lets suppose you went out and bought some groceries with your VISA card. To enter this transaction go to the groceries account and enter the transaction as paid by VISA and a amount of $125. (Tip: The shortcut to jump to another account it Ctrl-G).

Your groceries account now will of course show a total of $275. (400 allocated less the 125 spent).

If you look at the VISA account you will notice that the debit/credit is reversed there as the VISA account is like an envelope that holds all this money until the VISA bill arrives. When the bill arrives you will have all the money needed to pay the VISA bill. You would enter this transaction as a debit under the VISA account showing the real account that paid it the bill, (i.e. "Bank" for example).

The idea is, you develop a budget that adds up as close as possible to your income. You enter your Income amounts and use the "Do Budget" function to divide up the money into the various envelopes. 

If you are planning for an expense that is say 8 months away, a vacation for example, you can then divide the total expected expense by 8 and budget this money into a holiday expense account. The money will then be reserved "allocated" and ready for when you need it.

For example assuming that was your only purchase using your Visa card for the month when the bill arrives you pay it using your "Bank" account and record it against your Visa account which is debited to Zero. You would typically use the "R"econcile flag under Home Budget to check each item on your statement with the one entered into Home Budget and clear the Rec Bal: to zero. For more information on reconciling see the online help.

The nice thing about Home Budget is you can enter the transaction in either of the two affected accounts, i.e. if it is a Visa bill for groceries you can enter it under the visa account and specify groceries as the other account or visa versa. (The only thing to remember is for credit card accounts you reverse the debit credit if entering under the credit card account). I pile up all my Visa receipts each month and enter them under the VISA account.

Other notes:

  • If you have an excess amount of money in an expense account and want to move it to another, you can just enter a transaction between the two expense accounts.
  • You can edit a budget transaction like any other transaction to change the amount allocated into the expense account.
  • You can enter income directly into an expense account i.e. deposit into "Bank" and record against groceries. You just loose the fact that it was income for reporting, and it is immediately allocated by the expense account that you deposited it into.
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