Budgeting items that post on next month's statements

[ainsophaur]

One of the things that always trips me up when I'm doing my personal budget is how do I record spending in one month when it doesn't show up until the following month when the credit card statement arrives?

For example: Lets say I budget $600/month for groceries in January, and I charge it all to my Visa card. But, I make my payment on that card in February. When I make that payment, it throws off my budgeted payments for the month of February.

If I were paying for everything with cash, this obviously wouldn't be a problem.

I have the same issue with my paychecks. Since I'm a freelancer, I'm paid sporadically. Should I budget for how much I plan on billing for in a given month? Or, should I budget for the paycheck I expect to receive in a given month?

Thanks for the advice everything!

[sparkytheop]

I do it by making my credit card a budget account.  Anything I spend is removed from my budget with my credit card.  I then "transfer" the money from checking to the credit card when I make the payment (so, moving money within the budget, but not changing what it went to).

Hope that makes sense.  It also makes it so my "virtual" checking account balance can line up with my real balance.

[ainsophaur]

I do it by making my credit card a budget account.  Anything I spend is removed from my budget with my credit card.  I then "transfer" the money from checking to the credit card when I make the payment (so, moving money within the budget, but not changing what it went to).

Hope that makes sense.  It also makes it so my "virtual" checking account balance can line up with my real balance.

But doesn't that make it impossible to track what you're spending in each category?


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[C-note]

I use YNAB4.

When I purchase something on a credit card, I release that money from the category ($100 from "Clothes" for example) and then budget the $100 to the credit card category.  I then let the amount in the credit card category ($100) roll forward to the next month when I pay my credit card.

I then schedule the payment for the 4th and it should equal the amount that was carried forward from the previous month.

Hope that makes sense.

[ainsophaur]

Don't know what YNAB4 means but that makes sense! Thank you!


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[sparkytheop]

I do it by making my credit card a budget account.  Anything I spend is removed from my budget with my credit card.  I then "transfer" the money from checking to the credit card when I make the payment (so, moving money within the budget, but not changing what it went to).

Hope that makes sense.  It also makes it so my "virtual" checking account balance can line up with my real balance.

But doesn't that make it impossible to track what you're spending in each category?


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No, like C-note, it comes out of the category.  I don't carry a balance, so I don't have a "pay credit card" category.  I treat the money the same whether it is paid with my credit card or checking account, I just have them as two different accounts.

I also use YNAB (the old one, not the subscription based one).  It's "You Need a Budget"--a budgeting software program.

[ainsophaur]

Awesome. Thank you!


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[Rubyvroom]

I don't use any tracking programs or apps and simply track all spending via activity in my bank accounts, credit cards, and investment accounts in a spreadsheet. I input the activity after the month ends. I just know that there will be some lag in the timing, and am fine with that. I put credit card spend into the month I pay the credit card (not the month it was spent). I tend to look at my average spend over a number of months to see if I am tracking too high or low anyway, and don't get too stressed about individual months.

For example, I'm paid every 2 weeks and every so often my check is paid very late in the month. My 401K contributions are taken out of my check but might not actually post to my 401k account until early the next month. That bugs me a bit, as I know money was removed from my check and didn't land anywhere that month, but I just know it will post the following month and don't get too hung up about it. Same goes for credit cards. I know there will be a month lag and it's not a huge deal for me. I approach this all on a cash basis, as it's easier for me to just reconcile my accounts at the end of the month rather than try to keep track of all the timing involved.

For our "fun money," ie money spent on eating out, entertainment, etc., we do actually use cash and once that cash is spent, we're out of money for the month. That keeps us honest with the non-essential spend. For tracking purposes, I simply have a line for "cash" and that comes out the first of each month to replenish our fun money cash. I just know that money is spent on junk and don't bother tracking exactly what junk it was spent on.

It's a fairly imperfect system but it works for us :)

[ainsophaur]

I do it by making my credit card a budget account.  Anything I spend is removed from my budget with my credit card.  I then "transfer" the money from checking to the credit card when I make the payment (so, moving money within the budget, but not changing what it went to).

Hope that makes sense.  It also makes it so my "virtual" checking account balance can line up with my real balance.

But doesn't that make it impossible to track what you're spending in each category?


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No, like C-note, it comes out of the category.  I don't carry a balance, so I don't have a "pay credit card" category.  I treat the money the same whether it is paid with my credit card or checking account, I just have them as two different accounts.

Thing about this method is, then you've effectively doubled your expenses for the following month (assuming you paid with everything on credit cards).

So how do you get around that?


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[sparkytheop]

Day one:
Credit card account = $0
Checking account= $1000
Savings account=$1000

Budgeted amounts:
Electric $100
Food $100
Mortgage $500
Savings $200
Gas $100

Day two-- pay $100 electric bill on credit card

Credit card account = - $100
Checking account= $1000
Savings account=$1000

Budgeted amount      amount spent     amount available
Electric    $100                 - $100                     = 0
Food        $100                                                 =$100
Mortgage $500                                                =$500
Savings   $200                                                 =$200
Gas          $100                                                =$100

Day 3
Buy $50 in groceries and $25 worth of gas, both on credit card

Credit card account = -$175
Checking account= $1000
Savings account=$1000

Budgeted amount      amount spent     amount available
Electric    $100               - 100                       = $0
Food        $100               - $50                       = $50
Mortgage $500                                              = $500
Savings   $200                                              = $200
Gas          $100              - $25                        = $75

Days 4-14

Buy $15 groceries, $20 gas on credit card
pay $500 mortgage with checking account

Credit card account = -$175
Checking account= $500
Savings account=$1000

Budgeted amount      amount spent     amount available
Electric    $100               - 100                       = $0
Food        $100               - ($50 +15)             = $35
Mortgage $500               -$500                      = $0
Savings   $200                                               =$200
Gas          $100              - ($25 + 20)             = $55

Day 15
Get $500 paycheck, direct deposited to checking

Credit card account = -$175
Checking account= $1000
Savings account=$1000

Budgeted amount      amount spent     amount available
Electric    $100               - 100                       = $0
Food        $100               - ($50 +15)             = $35
Mortgage $500               -$500                      = $0
Savings   $200                                               = $200
Gas          $100              - ($25 + 20)             = $55

Day 16
Transfer $200 to savings account

Credit card account = -$175
Checking account= $800
Savings account=$1200

Budgeted amount      amount spent     amount available
Electric    $100               - 100                       = $0
Food        $100               - ($50 +15)             = $35
Mortgage $500               -$500                      = $0
Savings   $200            (not spent, just moved to savings account)  =$200 still available
Gas          $100              - ($25 + 20)             = $55

Didn't need to do any more shopping this month, same budget for next month, carryover available amounts to new month

Month 2, Day 1
Get paid $500, direct deposited to checking account

Credit card account = -$175
Checking account= $1300
Savings account=$1200

Budgeted amount      amount spent     amount available
Electric    $100                                           = $100
Food        $100                                           = $135
Mortgage $500                                           = $500
Savings   $200                                            =$400
Gas          $100                                           = $155

Month 2, Day 2
Credit card bill is due, balance is $175
Pay credit card with checking account.  For budgeting purposes, "transfer" that money from the checking account to the credit account.

Credit card account = $0
Checking account= $1125
Savings account=$1200

Budgeted amount      amount spent     amount available
Electric    $100                                           = $100
Food        $100                                           = $135
Mortgage $500                                           = $500
Savings   $200                                            =$400
Gas          $100                                           = $155


Hope this helps.  I don't have to double the expenses since I remove the amount from the "available" part of my category when I spend it.  When I pay my credit card bill, I just move the money from the checking account to the credit card account.  (When I do this in my actual budget, I call the check to the credit card company a "transfer" to my credit card account.) 

(please excuse any math errors, just coming off a 12 hour night shift)

[Metric Mouse]

I would just record all spending during the month it is 'spent'. I wouldn't worry about when I paid for it - budgeting is different (to me) than balancing a check book.  If everything is tracked when it is 'spent', then there will be no lag. Of course, your bank account will have the lag, and you'd have to be fine with your budget and yoru bank account not syncing up perfectly at all times.

[renata ricotta]

I would just record all spending during the month it is 'spent'. I wouldn't worry about when I paid for it - budgeting is different (to me) than balancing a check book.  If everything is tracked when it is 'spent', then there will be no lag. Of course, your bank account will have the lag, and you'd have to be fine with your budget and yoru bank account not syncing up perfectly at all times.

Agreed. I use Mint, and my system is that every transaction eats into my budget - when I spend $50 on groceries, it is spent out of my budget even though the cash hasn't left the system yet. When the credit card is paid off, it is marked as a "Transfer," because that's essentially what it is at that point. I set my rules so that Transfers are excluded from Budgets & Trends (otherwise, it does dumb things like saying I "spent" $500 on "finance" when really I transferred it to Vanguard). That way the expense only gets recorded once. Not sure how it works in your budgeting system, but that's what makes the most sense to me.

[ainsophaur]

Day one:
Credit card account = $0
Checking account= $1000
Savings account=$1000

Budgeted amounts:
Electric $100
Food $100
Mortgage $500
Savings $200
Gas $100

Day two-- pay $100 electric bill on credit card

Credit card account = - $100
Checking account= $1000
Savings account=$1000

Budgeted amount      amount spent     amount available
Electric    $100                 - $100                     = 0
Food        $100                                                 =$100
Mortgage $500                                                =$500
Savings   $200                                                 =$200
Gas          $100                                                =$100

Day 3
Buy $50 in groceries and $25 worth of gas, both on credit card

Credit card account = -$175
Checking account= $1000
Savings account=$1000

Budgeted amount      amount spent     amount available
Electric    $100               - 100                       = $0
Food        $100               - $50                       = $50
Mortgage $500                                              = $500
Savings   $200                                              = $200
Gas          $100              - $25                        = $75

Days 4-14

Buy $15 groceries, $20 gas on credit card
pay $500 mortgage with checking account

Credit card account = -$175
Checking account= $500
Savings account=$1000

Budgeted amount      amount spent     amount available
Electric    $100               - 100                       = $0
Food        $100               - ($50 +15)             = $35
Mortgage $500               -$500                      = $0
Savings   $200                                               =$200
Gas          $100              - ($25 + 20)             = $55

Day 15
Get $500 paycheck, direct deposited to checking

Credit card account = -$175
Checking account= $1000
Savings account=$1000

Budgeted amount      amount spent     amount available
Electric    $100               - 100                       = $0
Food        $100               - ($50 +15)             = $35
Mortgage $500               -$500                      = $0
Savings   $200                                               = $200
Gas          $100              - ($25 + 20)             = $55

Day 16
Transfer $200 to savings account

Credit card account = -$175
Checking account= $800
Savings account=$1200

Budgeted amount      amount spent     amount available
Electric    $100               - 100                       = $0
Food        $100               - ($50 +15)             = $35
Mortgage $500               -$500                      = $0
Savings   $200            (not spent, just moved to savings account)  =$200 still available
Gas          $100              - ($25 + 20)             = $55

Didn't need to do any more shopping this month, same budget for next month, carryover available amounts to new month

Month 2, Day 1
Get paid $500, direct deposited to checking account

Credit card account = -$175
Checking account= $1300
Savings account=$1200

Budgeted amount      amount spent     amount available
Electric    $100                                           = $100
Food        $100                                           = $135
Mortgage $500                                           = $500
Savings   $200                                            =$400
Gas          $100                                           = $155

Month 2, Day 2
Credit card bill is due, balance is $175
Pay credit card with checking account.  For budgeting purposes, "transfer" that money from the checking account to the credit account.

Credit card account = $0
Checking account= $1125
Savings account=$1200

Budgeted amount      amount spent     amount available
Electric    $100                                           = $100
Food        $100                                           = $135
Mortgage $500                                           = $500
Savings   $200                                            =$400
Gas          $100                                           = $155


Hope this helps.  I don't have to double the expenses since I remove the amount from the "available" part of my category when I spend it.  When I pay my credit card bill, I just move the money from the checking account to the credit card account.  (When I do this in my actual budget, I call the check to the credit card company a "transfer" to my credit card account.) 

(please excuse any math errors, just coming off a 12 hour night shift)

Extremely helpful. Thank you for taking the time to explain this to me. I understand!


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[sparkytheop]

Glad it helped!  Sometimes a visual/"picture" is much easier to understand.

[Playing with Fire UK]

I do something similar to sparkytheop. This also means that you can budget for big planned expenses (annual insurance, vacations, home improvements) every month in advance so that your budget doesn't look like you have a couple of hugely spendy months.

For the freelance income; I'd be trying to disconnect earning and spending. I'd budget based on my necessary spending; then income on top of that would top up a cash buffer for leaner months.

[ainsophaur]

Not sure I'm following you. Disconnect spending from earning?


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[Molzy]

I just pay off my credit card each week (at least), and I pay it off by category (so I make multiple payments, one for all the grocery charges, one for gasoline, one for personal, etc). This allows me to keep track of where I'm at each month. I use an excel file to track my budget, so I download our bank account, transfer any new charges over, and then categorize each charge. I also added a column for month, so even if I pay something off the beginning of November, I can categorize it as a "October 2016) charge.

That said, I also keep track of the annual spend. Some of my categories (like car insurance) aren't paid monthly, but I budget for it monthly. Thus, in a given month I may spend less or more than I made that month depending on what charges hit (this is mostly car insurance, home renovations, and vacations).

[Playing with Fire UK]

Not sure I'm following you. Disconnect spending from earning?

I would aim to spend the same amount regardless of whether it was a good month for income or a poor month.