Recently Money Beagle put up a post ruminating about whether his bookkeeping system, which entails subtracting earmarked funds against net worth, is maybe a shade on the overcomplicated side. I’ve been thinking the same thing about my own baroque shekel-counting schemes: this stuff is getting out of hand! As one of MB’s readers remarked, it may be time to apply the KISS principal: Keep It Simple, Stupid.
Bank accounts grow like topsy around this place. Right now I have four personal bank accounts, a joint checking account with M’hijito, a business checking account, and a PayPal account for the business. To keep track of credit-card charges, I use yet another spreadsheet. Then there are the spreadsheets for the budget: one for monthly nondiscretionary expenses and one for discretionary spending. Taken together, these little fellows have spawned eight spreadsheets for me to keep up-to-date.
These were relatively easy to handle in Quicken, because Quicken links accounts so that when you make a transfer from one to another it will automatically register the transaction in both accounts, and because it’s very easy to reconcile an account in Quicken. But now that I’m keeping my books in Excel, reconciliation is an old-fashioned headache, and transfers require me to manually debit one account and credit the other. It doesn’t sound like much extra work, but when you have to do it, you find it’s easy to lose track of stuff. One already has enough pains in the tuchus in one’s life without having to deal with some more.
How to decomplicate this?
In the first place, at the time I was laid off, I had a $14,000 emergency fund, which I stashed in my checking account and used as a “cushion,” ensuring I would never overdraw the account and eliminating the need to keep track of it someplace else. Since the market had crashed with a resounding thud, I really didn’t want to invest this money, because I was afraid of losing even more than the $180,000 that had already gone down the toilet.
After a difficult year of trying to live without pulling down anything from the remnants of my life savings, the market has pretty well recovered and savings are nearing their former state of normalcy.
So, in the fall I let my financial manager know I could not continue to live on less income than my base expenses and I would have to start taking a drawdown from investments. He suggested that instead of incurring a taxable event each month, I should use the after-tax money in the emergency fund, since in reality there’s plenty of money in taxable savings to cover emergencies. So I’ve been using about $1,100 a month of that 14 grand to supplement Social Security, providing enough to pay the bills before the unpredictable and unreliable pay from adjunct teaching comes in. To manage this, I opened a tiered money-market checking account to hold the amount remaining from the original 14 grand; from that I disburse the $1,100 to regular checking once a month. I figure this fund will be exhausted by September.
Adjunct teaching pay has to go to cover the mortgage on the downtown house. My initial plan was to transfer only enough to cover my share of each month’s payment to M’hijito’s and my joint checking account, which exists to hold cash for the mortgage. To keep from diddling it away on daily expenses, I started stashing teaching income in the money market account. Obviously, though, to keep track of those two items—the fund I was now depleting for living expenses and the money for the mortgage—and ensure I didn’t accidentally spend some of one fund on the other purpose, I needed another spreadsheet, one that would keep track of the mortgage payment fund. Now we’re up to nine spreadsheets. Make that ten: there’s one tracking investments, too.
Then something over $11,000 came in from the insurance company to cover hail damage. This money had to be carefully sequestered, because if I diddled it away there wouldn’t be enough to pay the swarms of workmen. Reluctant to open yet another account, I stashed it in the money market account, along with the mortgage fund and the dwindling cost-of-living fund. This added to the potential for confusion exponentially, requiring yet another spreadsheet.
Meanwhile, the bank account holding the self-escrows for annual tax and insurance payments (I have to set aside $325 a month to cover property tax, car insurance, and homeowner’s insurance) also held the summer stipend I got for developing the online course last year. The summer money would, I hope, carry me through what I expected would be four months in 2010 with less income than outgo (it devolved into five months, but that’s another story). There’s now just enough summer money left (if my arithmetic is right) to cover half the cost of the new pair of prescription glasses.
Okay. That’s the “system” as it stands. Is there a way to decomplicate this system?
Now that we have a permanent loan modification, it’s clear that the amount I’m earning during the academic year will more than cover a full year’s mortgage payments. The departmental chair has assigned me two sections to teach next summer, the proceeds of which will be gravy.
So, New Plan #1: transfer 100% of September-May teaching income to the joint account as it comes in. Let M’hijito figure out how to allocate it, with his share, to cover the mortgage. Use the summer pay (June-August) to cover the extraordinarily high costs of living in Arizona during a 115-degree summer, and, for a change, actually run the air-conditioning when typing on a keyboard will raise a sweat.
New Plan #2: At the end of each month, transfer any money left from that month’s income into the savings account for discretionary spending.
These two strategies will hugely plump up monthly savings, which is used for things like clothing, car maintenance and repair, and house repairs. In the winter, there’s often $100 or so left; in the summer, a fair amount should remain from the teaching income—possibly enough to add up to around $3,000, plenty to buy clothes, keep the aged car running, and cover small emergencies.
Decomplicating benefits: Moving all academic-year teaching income directly into joint checking eliminates the need to keep track of how much of the money-market account’s balance should be held aside for the mortgage. That takes one moving target off the field. Transferring whatever remains in checking at the end of each month allows me to see, at a glance, what’s in savings to cover unplanned expenses.
Once the glasses are paid for, all that will remain in the Tax & Insurance account will be dedicated fully to paying tax and insurance. This will decomplicate another spreadsheet; here, too, the bottom line will show how much is available to cover those exorbitant costs.
And once the bills for the roof, the new air conditioner, and the exterior painting are paid, all that will remain in the money market account is the balance of the survival savings. When that’s depleted, the money market account can be closed. w00t! A whole spreadsheet gone!
By the end of the summer, here’s how I expect this to look:
Still complicated, but at least it shouldn’t take 10 spreadsheets to keep track of it.
Speaking of those spreadsheets, why do I need ten of the damn things? Right now I have two workbooks, one tracking cash flow (in all those bank accounts!) and credit-card charges and one tracking the budget, along with various schemes, projections, and retrospective summaries. Why am I doing this?
I think I’ll collapse these into a single workbook, leaving all the fevered calculations in a separate file. This will allow at least allow me to move back and forth between cash flow and the budget, rather than keeping two files open in Excel to enter routine transactions. This will reduce the number of pages where I regularly enter numbers from sixteen to five. That is, from these (some of which have been defunct for over a year!)…
And that, I suppose, is as close to minimalist as I’m gunna get.