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The bank Simple has three great features:

The Safe-to-Spend balance is pretty simple: it's just the balance in your checking account minus the total amount set aside for goals and upcoming expenses.

Safe-to-Spend = Checking balance − sum(Goals) − sum(Expenses)

Goals are "accounts" to track money set aside to cover future purchases. You can move money between Safe-to-Spend and any Goal at any time assuming there's enough money. You can mark any transaction in the checking account as being spent from the Safe-to-Spend balance or a Goal balance.

Expenses are almost identical to Goals, except Expenses are on a recurring schedule and have two balances: a Ready balance and a Coming Up balance. You can readily move money between either of those balances and the Safe-to-Spend balance.

This is really useful for keeping track of things in my Simple checking account, but it doesn't help me with account anywhere else, so I'm looking into setting up an accounting system that can do this for any bank account.

Question: What's the double-entry bookkeeping method for tracking Safe-to-Spend, goals, and expenses balances?

If we want to keep track of the Safe-to-Spend, Goals, and Expenses balances and move money between them freely, we need accounts for each, right? What kind of account is each? Asset? Liability? Equity? Revenue? Expense? If we build a balance sheet, we have to avoid double-counting the amount in the bank account and the amount in the Safe-to-Spend, Goals, and Expenses accounts.

Is double-entry bookkeeping able to account for these kinds of balances?

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  • I prefer Every Dollar Has Function to Safe-to-Spend if for no other reason that because when every dollar is already in it's own account (even if that account name is "Miscellaneous") you don't need to worry about calculating how much is safe to spend: just look at that cell in your spreadsheet...
    – RonJohn
    Oct 6, 2019 at 19:14
  • The more I read about Safe-to-Spend, the more it looks like my "check register is the budget" method except my check register has a cell for the Safe-to-Spend money so that I know what my end of month balance will be.
    – RonJohn
    Oct 6, 2019 at 19:20
  • It's not really about the end of the month. It works over any time period. It's a mechanism for allocating every penny in a bank account to some purpose. And anything unallocated is considered safe to spend.
    – Chris Calo
    Apr 2, 2021 at 13:08
  • @ChrisCalo are you sure it works for any time period? This blog suggests it is calculated for the current month. (Btw, the feature links from your question are dead now.)
    – TTT
    Apr 2, 2021 at 14:41
  • Thanks for the pointing out the broken links! Fixed now. I’m not trying to deal with calculating automatic contributions on a schedule, so everything about timing is a distraction. Instead, I’m just trying to figure out how to “allocate” amounts in a bank account to some number of future expense accounts and the remainder to a “Safe-to-Spend” account.
    – Chris Calo
    Apr 2, 2021 at 21:04

1 Answer 1

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+50

One way to implement this is to use accruals accounting (which is typically built on double-entry accounting).

That is, enter the expenses when they are incurred rather than when they are spent. You’d also enter the income when earned rather than when received.

Then the balance of the account would be your ‘safe to spend’ amount.

Method 1: use your bank accounts

If you use just one bank account, a simple way to implement this is to create a Safe-to-Spend (Asset) account that we'll call "Available", plus all the Goal (Asset) accounts. The bank account is then a (virtual) aggregation of these asset accounts. You can do this in MYOB if you arrange the Safe-to-Spend and Goal accounts as sub-accounts of a summary account that we'll just call Bank here.

Setting goals and paying for things reduces your Available amount. So when you set goals or pay for things, you debit Goal (put money in) or Expense, and credit Available (take money out). It's possible that Available goes negative, in which case you know that you don't have any money that is safe to spend.

Assuming you are conscientious about entering your transactions, the summary "Bank" account always reflects the true total of your actual bank account.

Since transactions are all handled in the Available account, bank reconciliation will always be done with that account. You will need to manually reconcile movements between Available and Goal as that will not show up in your bank accounts.

You could open multiple bank accounts called "Goal 1", "Goal 2", ..., and "Available", in which case you won't need the summary "Bank" account. But you will have multiple statements to reconcile.

Method 2 use tracking accounts

You might have multiple bank accounts that aren't structured according to your Goals. For example, you might have a credit card account, a savings account and an investment account. The balances do not reflect expected mortgage payments or that nice car you've got your eye on.

In that case, you can create 'paired' tracking accounts. You'll need to be more careful because these accounts will not have bank statements for reconciliation.

Practically-speaking, it doesn't really matter where you put the tracking accounts (Asset, Liability, Equity, etc). My uni background was computer science and not accounting, so if you need to have these in 'proper' categories, please consult an accountant. I'll use Equity accounts here since that seems appropriate for the exercise of apportioning your equity.

Create Equity accounts Allocated, Available, Goal 1, Goal 2, etc.

When you earn income, you make 2 sets of double entries:

  1. Income account // Asset (bank) account - this is the real bank transaction
  2. Allocated account // Available account - this is your tracking transaction

When you create financial goals, you make 1 set of double entries:

  1. Available account // Goal account

When you spend money, you make 2 sets of double entries:

  1. Asset (bank) account // Expense account - this is the real bank transaction
  2. Goal account // Available account - this is your tracking transaction (make sure this goes in the opposite direction compared to the 'creating goals' double entry).

Your Allocated account will keep growing. It tells you how much you have allocated over time.

Your Available account will contain your Safe-to-Spend amount.

Your Goal accounts will reflect the amounts set aside, which will decrease as that money gets spent.

Disclaimer: I am not an accountant and this answer is not financial advice. Please seek appropriate financial advice.

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  • This is an independent consideration and doesn't really address the question.
    – Chris Calo
    Apr 2, 2021 at 13:02
  • @ChrisCalo I've added a couple of sections to the answer that hopefully addresses what you're asking.
    – Lawrence
    Apr 3, 2021 at 5:27
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    A big thank you for the additional detail. This gives me a few options to think about. Bounty awarded. 👍
    – Chris Calo
    Apr 10, 2021 at 13:43
  • Only suggestion I have for future readers is to remove the part about accruals accounting. That's a distraction not too relevant to the question. The reason is that the semantics of saving for goals and future expenses is allocating money to some future purpose but not incurring that expenditure in the current period.
    – Chris Calo
    Apr 10, 2021 at 13:48

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