How handle "savings" in Q99?

I don't think I can help you with the concept, I don't know the "best" way; but just a comment or two on the problem that not having "spent" the money appears to cause, and methods to work around that.

First, you can create a report that shows only transfers into your savings account - for the current year, or past 12 months, or whatever (you can also "save" the report and put an icon on your Quicken toolbar to run it with one click). Second, you can put something specific in the Memo field of your special savings "goal" transfers; Quicken will let you select report transactions based on data in the memo field. You can select on the exact contents, or on a subset of the contents, of the Memo field.

yeah that sounds like best method

just make a custom report and "save" it

right?

You've only had one response, but are prepared to call it the "best"? :) I'm flattered, but you may be premature.

I thought your original concern was that you could not "see" how much you had "saved"; so I proposed one method to make it easier to "see". But I think what I proposed will do what I thought you were asking for.

Well, to start, lets change how we think about savings.

-For example: Transfering money from one account to another is not saving.

-For example: Considering only a savings account and a credit card balance, increase the savings account balance by $100 and increase the CC balance by $150 and you've not saved $100, rather you've reduced savings by $50.

Since most people have annual financial obligations (taxes for example) and obligations that vary by month (seasonal heating costs for example), you generally need to look at a 12 month period to measure savings. Generally, the difference in net worth for a 12 month period is how much you saved (or lost!) during those 12 months.

And, unless you are flush with money, transferring $100, or any fixed amount, monthly to a "savings" account is generally a bad idea. Some months your expenses will exceed income (property taxes, insurance, auto maintenance, and wife all due!), other months expenses will be low. Using your expense budget, you can work out how much to transfer each month so that the total transfered, in your case, is $1200, but without increasing peak cash requirements.

dick w

Understood

That's why I was asking how I could track where I'm at in the process

so how would you do it?

This example has an extreme result - only to make the point clear.

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The following cash plan (tutorial, not realistic) shows cash flow by month, beginning with an 1800 balance (the necessary amount for this plan so that no month has a negative balance) and ending, 12 months later, with an 1800 balance - ready for the next year's cycle.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Begin bal 1800 Income 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 FICA 20 20 20 20 20 20 20 20 10 Auto Ins 500 700 Property Tax 2800 Home Insurance 1000 Vacation 1000 Utilities 180 180 80 30 30 30 30 80 90 100 100 100 Car loan Prin 100 100 100 100 100 100 100 100 100 100 100 100 Food,clothes..300 300 300 300 300 300 300 300 300 300 300 300

Exp&PP total 600 600 500 3250 450 1450 1950 500 500 1200 500 500

To Saving 100 100 100 100 100 100 100 100 100 100 100 100

Balance 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

From here on, we'll use only the total Exp&PP, not the detail lines. The total expenses are $12000 (examples always have easy numbers). Monthly income is 1100. Times 12 = 13200/yr. Income less Expenses less PrincipalPayments is 13200 - 12000 = 1200, the 100/mo average cash flow. I included FICA to make a point, if FICA is not deducted from your earnings for the full year you do not have "extra" cash, it is just another detail in the cash flow plan.

Lets revise "To Saving". Our heuristic: begin with a month following a zero balance, take the entire balance-forward to savings (until the 1200 is reached), then proceed to the next month. When a months balance goes negative, reduce the most recent "To Saving" so that the months balance is zero, not negative. Then continue with the heuristic. That gives:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Begin bal 1100 Income 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 Exp&PP total 600 600 500 3250 450 1450 1950 500 500 1200 500 500 To Saving 0 0 0 0 0 0 0 600 500 0 100 0 Balance 1800 2300 2900 550 1200 850 0 0 100 0 500 1100

Here, for easy comparison, are the ending balances from above when

Bal.(100/mo) 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

With the revised cash flow plan, every month has a lower balance. Where did that money go? Looking at the two plans you might think the revised plan delayed the transfers to the savings account, in fact the revised plan accelerated the transfers. Balances are reduced, money is transferred sooner because the revised plan does not need to accumulate as large a balance for the peak, Apr-Jul, months.

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I will have to print it out and study it in depth as I'm still not sure I'm getting it

In part because I picked up text from an old example that I had apparently tinkered with - a "Bal" line was wrong (flagged her with

--------------------- The following cash flow plan (tutorial, not realistic) shows cash flow by month, beginning with an 1800 balance (the necessary amount for this plan so that no month has a negative balance) and ending, 12 months later, with an 1800 balance - ready for the next year's cycle.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Begin bal 1800 Income 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 FICA 20 20 20 20 20 20 20 20 10 Auto Ins 500 700 Property Tax 2800 Home Insurance 1000 Vacation 1000 Utilities 180 180 80 30 30 30 30 80 90 100 100 100 Car loan Prin 100 100 100 100 100 100 100 100 100 100 100 100 Food,clothes..300 300 300 300 300 300 300 300 300 300 300 300

Exp&PP total 600 600 500 3250 450 1450 1950 500 500 1200 500 500

To Saving 100 100 100 100 100 100 100 100 100 100 100 100

Balance 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

From here on, we'll use only the total Exp&PP, not the detail lines. The total expenses are $12000 (examples always have easy numbers). Monthly income is 1100. Times 12 = 13200/yr. Income less Expenses less PrincipalPayments is 13200 - 12000 = 1200, the 100/mo average cash flow. I included FICA to make a point, if FICA is not deducted from your earnings for the full year you do not have "extra" cash, it is just another detail in the cash flow plan.

Lets revise "To Saving". Our heuristic: begin with a month following a zero balance, take the entire balance-forward to savings (until the 1200 is reached), then proceed to the next month. When a months balance goes negative, reduce the most recent "To Saving" so that the months balance is zero, not negative. Then continue with the heuristic. That gives:

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Begin bal 1100 Income 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 Exp&PP total 600 600 500 3250 450 1450 1950 500 500 1200 500 500 To Saving 0 0 0 0 0 0 0 600 500 0 100 0 Balance *** 1600 2100 2700 550 1200 850 0 0 100 0 500 1100

Here, for easy comparison, are the ending balances from above when

Bal.(100/mo) 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

With the revised cash flow plan, every month has a lower balance. Where did that money go? Looking at the two plans you might think the revised plan delayed the transfers to the savings account, in fact the revised plan accelerated the transfers. Balances are reduced, money is transferred sooner because the revised plan does not need to accumulate as large a balance for the peak, Apr-Jul, months.

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I'm curious.... where did you learn to think like this Dick

Serious question

Its out of the box thinking. No?

"..And, unless you are flush with money, transferring $100, or any fixed amount, monthly to a "savings" account is generally a bad idea."

Gee, I'm not sure I agree with THAT one! A lot of financial analysts say, for example, to pay your first, or 'bank' any pay raises, or reduction of expenses, etc. If you have a savings account that you truly use for savings, and you can live without the money being transferred, I am not sure how you can say it's "...generally a bad idea".

I've been doing this for years after I no longer paid a car payment, and my savings account is a nice figure now, and I've never missed the $. (Maybe this qualifies for "flush with money", but I wouldn't think so...)

I'm not sure if you are asking because of "wow" or "wacko"? Or because the text posted is somewhat garbled.

No; it is just math.

THe example was extracted from old post and the text, and math, is a bit garbled. I posted a version with the math corrected.

The essence of it all is: if you want to send $100 every month to somewhere (savings, credit card) and you have a fixed monthly income, then for those months where total outflow exceeds income you have to save money in earlier months to meet the total disbersments for that month. But it makes no sense to "save" money for later disbursements to savings accounts or cc - if that is the destination of the funds then do it now and thus do nothing in that later month as YOU ALREADY MADE THE DISBURSEMENT.

If you hold money intended for later payment to cc debt, you pay interest. Make monthly payments of required minimum, make extra payments as soon as the money is available.

Similar arguments for transfers to savings/investments.

Consider a simple two month example, where we want to average over the months $100/mo to savings or a cc balance (in addition to minimum required payments).

Assumptions are: constant income, variable disbursements by month, for a year disbursements = income.

Each months income $1000

Expenses & other disbursements (except that $100) for the two months is $1800. That, plus the $200 to be distributed, equals income.

month-1 month-2

Your strategy is 100 payment 100 hold to month-2 100 in month-2 make payment with the 100 from month-1

My strategy is 200 payment 0 I already made the payment a month earlier than you

Hope that presentation is clear. You held money from month-1 to make a payment in month-2 that you could have made in month-1. Why?

I know "a lot of financial analysts say". Their advice is easy to follow and for "a lot" of people it may be only what they are capable of. To do it as I suggest you have to work out with reasonable accuracy your cash disbursements by month and then use an algorithm to determine for savings or cc debt how much to pay in which months. It's too bad that those analysts don't suggest there is a better way (if you agree in the example above that 200 in month-1 is better) for those comfortable with budgets, math, & spreadsheets.

dick w

Phew

Still having a hard time wrapping my head around this. Sorry.

I feel as if I'm on the "edge" of understanding your concept..... but cant quite reach out and grasp it.

Basically you are saying that its impossible to save on a monthly basis cause some of what you save will actually be used up for expenses that come only maybe twice yearly or something like that?

And that one must go ahead and figure up what he spends and earns on a yearly basis and just put one big lump some into savings all at once and be done with it for the year. Correct?

If this is what you are saying than I "could" do the above as I track EVERYTHING I spend and earn in Quicken and have good records of that. I'm somewhat anal abt recording every little;e expense

The word "save" is used too many ways, lets use "invest" as if we are purchasing mutual fund shares for $100 every month. I want a word where the money is clearly gone from your account.

Here is our beginning speadsheet again, so that I can reference it in responding to your questions. The spreadsheet includes your gross income and all disbursements. Each months balance is calculated as prior month's balance + this month's income - this month's expenses. The beginning balance is set so that one or more months has a zero balance and no month has a negative balance.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Begin bal 1800 Income 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 FICA 20 20 20 20 20 20 20 20 10 Auto Ins 500 700 Property Tax 2800 Home Insurance 1000 Vacation 1000 Utilities 180 180 80 30 30 30 30 80 90 100 100 100 Car loan Prin 100 100 100 100 100 100 100 100 100 100 100 100 Food,clothes..300 300 300 300 300 300 300 300 300 300 300 300

Exp&PP total 600 600 500 3250 450 1450 1950 500 500 1200 500 500

Invest 100 100 100 100 100 100 100 100 100 100 100 100

Balance 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

No, the spreadsheet above has $100 investment every month so you can invest on a monthly basis, the only problem is that it is not an efficient use of your money.

No, you should make the spreadsheet just as above, your gross income and montly expenes (if you are paid byweekly, make a byweekly spreadsheet).

Good. Now that you've made your spreadsheet, just like the above, lets see if we can't improve it.

The last two lines are

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Invest 100 100 100 100 100 100 100 100 100 100 100 100 Balance 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

Beginning in Aug, the month after a zero balance, we've got a $500 balance in our account and in September there is a $100 investment to be made.

We've got the money available in Aug, lets make the investment in Aug - why let the money sit for a month!

So now our spreadsheet looks like this

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Invest 100 100 100 100 100 100 100 200 0 100 100 100 Balance 2200 2600 3100 850 1400 950 0 400 1000 800 1300 1800

We are not "just put one big lump", we are looking at our spread sheet to see where we can invest earlier, it might all be in one big lump, but that would be a rare result. More likely would be investings of differing amounts in less than 12 months.

Now make the Oct investment in Aug

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Invest 100 100 100 100 100 100 100 300 0 0 100 100 Balance 2200 2600 3100 850 1400 950 0 300 900 800 1300 1800

We can make Nov, Dec, and Jan investments in Aug. (where I do multiple months in one step- if it's not clear, just do it one month at time).

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Invest 0 100 100 100 100 100 100 600 0 0 0 0 Balance 2200 2600 3100 850 1400 950 0 0 600 500 1100 1700 Balance 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

Thats it for Aug. We can make investments for next Feb, Mar, Apr, May, Jun in September (we can't do Jul because the Oct balance would be negative).

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Invest 0 0 0 0 0 0 100 600 500 0 0 0 Balance 1700 2200 2800 650 1300 950 0 0 100 0 600 1200 Balance 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

Lastly, we can make the investment scheduled for next Jul in Nov.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Invest 0 0 0 0 0 0 100 600 500 0 100 0 Balance 1600 2100 2700 550 1200 850 0 0 100 0 500 1100

Above is our final plan. Below is the original plan. For this example, funds are being invested months earlier - because we invest when the funds are available, instead of holding them and doling them out at $100/mo.

Invest 100 100 100 100 100 100 100 100 100 100 100 100 Balance 2200 2600 3100 850 1400 950 0 500 1000 800 1300 1800

dick w

"Dick Weaver" wrote

(snip)

(snip)

Hi Dick,

I've been trying to follow this thread, but I don't understand:

1. Why are you only accounting for the car loan principal and not interest?
2. If you are only accounting for principal, why aren't the projections for P decreasing?

Dick, I've been following this most interesting discussion and find it (as usual) very fascinating. I have one question though. For the small investor that wants to use dollar-cost averaging in his investments, would this still make sense?

THe example is tutorial, not complete. I included a loan principal because it is not an expense but is a cash outlay. I'll change the heading should the example ever be posted again.

thanks dick w

A two part non-answer.

First, I think the example has an extreme result; most people would likely have a more even spread(of the $100 payments).

Second, I'd have to research dollar-cost averaging (I know the defintion and the math), but is the averaging requirement "regular" (weekly, monthly, quarterly, ...) or will "random" work and does it make any difference in the results? I have no idea.

I can think of investments where it might not work - always buying corn futures at the same time of the year might not be optimal. So I should change my spiel - you always want to pay cc debt as soon as possible, you might want to invest earlier.

For the investor that wants to stay monthly, the initial spreadsheet still makes sense; providing monthly account balances and those can be used to plan short term investments, cd purchases for example.

The initial spreadsheet also helps when an unplanned expense occurs - you can look at the coming monthly balances and work out how many months you have to recovered from the unplanned expense (the answer may be 0, but at least you know).

dick w