Managing an Account with Multiple Categories

Question

Assume I setup and account that has multiple categories, say I have 1000 to invest, and I do something like this:

• 300 Kid 1 college
• 300 Kid 2 college
• 150 Emergency Fund
• 250 New House

It is pretty easy to figure out percentages, in this case. So later if the account value is 1002, and I need to withdraw some money for taxes (say 10), the percentages for each will remain the same (30%,30%,15%,25%), although the total balance will change.

But what happens when I want to withdraw some money from one account? Say Kid 1, needs some cash to take a class. The percentage of kid 1 college will change, and it is a bit tedious to do the work by hand:

1. Figure current balance for all categories
2. Subtract the amount needing to be withdrawn
3. Re-figure all the new percentages for each category with the new balance.

First what is that called? Second are there some easy spreadsheet tricks to make the work easier? Third is there software for doing such?

Answer 1

I see three ways to do this.

1. The way I have done this is to pick one sub-account and credit all the interest to that one sub-account. This works well with bank accounts where the interest is paid either monthly or quarterly. It is quick to do.
2. when the interest is credited look at the percentage of each sub-account,and divide the interest income accordingly. It is pretty easy to calculate but it doesn't take into account that the money in each sub-account may have been contributed on different schedules, so some will be credited too much and others too little.
3. calculating average daily balances of each account and then divide the interest by the percentages of the average daily balances. This seems like too much work, even when bank rates were higher.

Note that I kept saying interest. I assumed for this answer you were only considering money being saved in a savings account. Money that is to be invested for the long term (college fund, retirement) have much different rules for contributions, use, deductibility, age rules: that they would tend not to be mixed within the same account.