With A Real Budget you have a very different way to view and manage the activities that make up your household finances. The program is a standard platform that is flexible to work for you and everyone else.
Take a moment to become familiar with a couple of new concepts that you will be encountering as you work your way through the "Getting started steps."
You can think of a budget space as a file folder in which you have all of the tools you need to manage your household finances:
- the managed checking account,
- the budget for the money that flows through that checking account,
- the debt-to-income ratio for the incomes that flow through the checking account, and
- your net worth from all assets and liabilities associated with the checking account.
When you first start A Real Budget, the Primary budget space is created for you. You can change the name of the Primary budget space, but, you may not delete it.
There is no limit to the number of additional budget spaces that you can add. Each budget space that you create in A Real Budget is kept separate from all other budget spaces. You can switch between budget spaces at any time.
New budget spaces, like the Primary budget space, are inactive. There is no pressure to finish setting up a new budget space quickly. A budget space "goes live" the first time you pay bills. Thereafter, on a day-to-day basis, you use A Real Budget to keep up with the inevitable day-to-day changes that happen with your everyday money and to do periodic, routine tasks like paying bills and balancing monthly statements.
In A Real Budget you manage your income, out-of-pocket cash, bills, credit cards, sinking funds and short-term savings in the budget space's dynamic spreadsheet for up to twelve months. The rows and columns in your budget spreadsheet are automatically populated by the program using the information that you provide to describe the six parts of your everyday finances.
- Out-of-pocket cash
- Credit cards
- Sinking funds
- Short-term savings
The budget in a budget space is used to manage the money that flows through one checking account.
- The incomes that are deposited into the checking account.
- The expenses that are paid from the checking account.
- The short-term savings that have been set aside and are kept in the checking account.
The money that is in the checking account is kept track of in A Real Budget with ledgers. Instead of one balance, the money in the budget's checking account is the sum of the balances in all of the ledgers.
Your debt-to-income ratio (DTI) is all of your monthly debt payments divided by your gross monthly income expressed as a percent. It indicates to lenders your ability to handle the monthly payments for the money you want to borrow.
While debt-to-income ratio standards used by vendors vary, a typical interpretation of your DTI by a lender could be:
35% or less: Your debt is at a manageable level.
36% to 49%: You’re managing your debt, but lowering your DTI is encouraged.
50% or more: Your money for spending and saving is probably limited.
Your debt-to-income ratio will change over time. Ideally, your gross income will increase while your debts decrease. You keep track of how your debt load is changing by updating your DTI in your budget space.
The measurement you use to monitor your financial health is your net worth. Net worth is the value of all the assets you own, minus all of the liabilities that you owe. For example, consider a couple with the following assets:
- Primary residence valued at $250,000
- An investment portfolio with a market value of $100,000
- Automobiles and other personal assets valued at $25,000
Their liabilities include:
- An outstanding mortgage balance of $100,000
- A car loan of $10,000
The couple’s current net worth is calculated as:
(Assets) - (Liabilities) = Net worth
($250,000 + $100,000 + $25,000) – ($100,000 + $10,000) = $265,000
Your net worth will change over time. Ideally, the value of your assets will increase while your liabilities decrease. You keep track of how your finances are changing by updating your net worth in your budget space.
Select the bank or credit union checking account you will be managing in the Primary budget space.
If you don't have a checking account or the account you have is used with a debit card, choose a bank or credit union and open a checking account before proceeding.
Deposit into this checking account all of the money you have on hand now that you will want to manage in the budget space.
If you use a debit card, or other form of electronic payment for purchases, you may also need a second checking account. This second account will not be managed with A Real Budget. You will use it only for your out-of-pocket spending money.
In addition to the budget, the budget space is where the holidays and outgo categories that are used in the budget are maintained.
Holiday is not a new term. What is new is how holidays are used in a budget space.
A Real Budget calculates the dates in the future when you will be receiving income, paying bills and making credit card payments. These calculated dates are straight forward except when one falls on a holiday or weekend and the event must be moved to a business day. In those situations, the program needs to know how to reschedule the date to when the event will actually happen. You provide the needed information by selecting the holidays that could cause a change along with whether a date that falls on a weekend or holiday is to be rescheduled to a prior or following business day.
Adding holidays to a budget space can be done by:
- Manually editing the list of holidays,
- Importing the holidays from another budget space, or
- Downloading a pre-defined holiday file (as shown in the below video).
Holidays can also be added and edited "on the fly" wherever they are shown in a budget space window or dialog box.
Outgo categories are descriptive names that are used in a budget space to:
- group bills in related categories such as "household" or "insurance,"
- control the sequence in which bills are listed in a budget both within each outgo category and in the entire "Bills" budget group, and
- organize credit card charging history.
Outgo categories can be added to a budget space by:
- manually editing the list of outgo categories,
- selecting from a list of predefined outgo categories (as shown in the below video), or
- importing the outgo categories from another budget space.
Outgo categories can be added and edited "on the fly" wherever they are shown in a budget space window or dialog box.
In A Real Budget you manage your income, out-of-pocket cash, bills, credit cards, sinking funds and savings in one dynamic spreadsheet. There are two dated columns for each month in the budget which default to the 1st and 15th. You can adjust the default column days in Options to better fit your cash flow situation.
In each budget column are listed:
- the unallocated cash that is "Expected to be available" in the budget space's checking account on the column date, and
- all payments and set asides that are due on the column date through the day before the next column date.
Near the bottom of each column is your "Net cash flow" which shows you, on the column date, whether you plan on spending more money than you have available.
Building your initial budget by adding your incomes, bills, credit cards and your allowance (if you choose to use this feature) gives you a clear picture of your household finances as of now. Adding debt payoff plans, sinking funds and savings will come later after your initial budget is in place and you have a clear financial picture of where you are, where you're headed and what's possible.
The money that is deposited into a budget space's checking account comes mainly from one or more income sources. When and how much is expected to be deposited from each predictable income is calculated by A Real Budget using the descriptive information that you provide.
- The income type and lifespan.
- How check amounts vary.
- The pay period or hourly net pay amount.
- When pay periods end (the last day to be included in the next paycheck).
- When paydays happen after each pay period (when paychecks are handed out).
When and how much is expected from unpredictable incomes is entered by you as future payday dates and paycheck amounts become known.
There are three types of income.
- Active (earned) - Money earned from working that requires your time. You actively work and you are paid for it. Examples are salary, wages, bonuses, commissions, contract work.
- Portfolio (unpredictable) - Money from selling an investment for more than what you paid (capital gains). Examples are stocks, bonds, mutual funds, interest, buying/selling real estate or other assets such as automobiles.
- Passive (inactive) - Money generated from assets you own where you are not actively working. Examples are rental income, business income (only if you are not required to be there), creating/selling intellectual property.
Each income has a lifespan that defines how long the income is expected to be received.
- For the foreseeable future - there is currently no end to when or how many checks will be received
- A set number of times - a known number of checks will be received
- Until a date - checks will no longer be received on or after a given date
Jobs are typically categorized by how a person is paid.
- Salaried - a person is paid a fixed amount (salary) regardless of how many hours they work each week
- Hourly - the gross amount of each paycheck (before deductions) is the number of hours worked each week times an hourly wage
- Unpredictable - the amount earned depends on how often a task is accomplished such as selling real estate, selling cars, or spending billable hours working with a client
To more accurately predict when and how much is expected to be received from a salaried or hourly income over the coming months, these typical job category descriptions are adjusted slightly. In A Real Budget incomes are described in terms of the paycheck amounts expected:
- always the same, or nearly the same, or
- based on time worked.
This slight adjustment in how to describe paycheck amounts allows for hybrid paydays such as:
- a salaried income for which each paycheck is not the same because each paycheck amount depends on the hours worked during each pay period, and
- an hourly income for which the work schedule never varies thereby resulting in a paycheck amount which never varies.
Here's an example of a salaried job with a paycheck that depends on hours worked. A professional works each Tuesday and Thursday. The salary is $400 per day. Pay periods end on the 1st and 15th of each month which means the person's paycheck amount depends not on the salary amount, but, on how many Tuesdays and Thursdays there were in the pay period. To accurately predict the paycheck amounts for this hybrid income, in A Real Budget the salaried income is treated as an hourly income that is based on a gross hourly wage of $50 per hour ($400 daily salary divided by 8 hours paid per workday). The net hourly pay used by the program can be calculated by dividing a paycheck amount by the number of hours worked in the pay period. This calculation could look like:
Net paycheck amount (after deductions): $1,312
Number of Tuesdays and Thursdays in the pay period: 4
Number of hours paid in the pay period: 4 * 8 = 32
Net hourly pay: $1,312 / 32 = $41
Decide on the credit cards for which you will be making payments from the budget space's checking account. At this point, you are only adding the credit cards. Any existing credit card statements, charges and refunds will be added later as part of preparing for paying bills for the first time in the budget space.
For each credit card being added, you will need:
- The day each month on which statements normally close,
- The day each month when payments are due,
- How you pay each monthly payment,
- Whether refunds are posted by the credit card company as partial payments on unpaid statements or always as normal charging transactions for the next statement.
The best resource for finding this information is current and old statements which can be viewed on each credit card company's website.
If you don't have an online account with each of your credit card companies, now would be a good time to set them up. You can save the website and logon information in each credit card's Info window.
On (or before) the day a credit card statement closes each month, the credit card issuer tabulates new activity and sends customers an account statement. Each statement has a new balance amount which is calculated with activity since the previous statement.
-Previous statement balance
- credits (including refunds if the credit card company uses refunds as payments on open statements)
- cash advances
You have the option of paying any amount from the statement's new balance to the minimum payment amount as shown on the statement. Payment is due on the statement's due date.
- If you pay the statement's new balance amount in full on or before the payment due date, there is no late fee and no interest is charged.
- If you pay an amount that is less than the statement's new balance on or before the payment due date, there is no late fee, but interest is charged on the new balance amount minus the payment amount.
- Regardless of the amount of the payment you make, if the payment is made one or more days after the payment due date, both a late fee and interest on the statement's full new balance amount are charged.
Late fees and interest are added to a credit card account the same as purchase transactions. They are included in the new balance amount on following statements and accrue interest the same as purchases.
There is typically a twenty-five-day grace period between the day a credit card statement is issued and when the resulting payment is due. Payment days never vary; however, statement closing days could be sooner than the normal closing day. For example, a card closes on the 19th with a payment due the following month on the 15th. Each payment will always be due on the 15th, but statements could close on or several days before the 19th.
Being aware of the statement closing days on your credit cards can be useful for delaying when you will have to pay for purchases by as much as 30 days. For the card example in the previous paragraph, if you buy something just before the statement closes on or before the 19th, the purchase will be on your next statement. If you wait to make your purchase until on or shortly after the 19th, the transaction will not appear on the next statement, but will be delayed until the following statement. You will have an extra 30 days before having to pay for the item.
Bills, also called expenses, are financial obligations for the goods and services in your life on which you are required to make payments. Most of the bills you will have are predictable, such as:
- Rent or mortgage
- Utilities (electricity, water, garbage, sewer)
- Loans (auto, home, personal, etc.)
- Insurance (home, health, auto, etc.)
- Gym memberships
- Subscriptions (magazines, newspapers, Netflix, Amazon, Hulu, etc.)
There are also unpredictable expenses. You may not know in advance when unpredictable bill payments will be due, how many payments there will be and/or how much the payments will be. Examples include:
- Medical/dental care
- Household services (plumbing, electrical)
- Veterinary services
Then there are the emergency expenses that are totally unexpected. These bills could require only one payment. A large, due-on-receipt bill payment often translates to unexpected debt payments when you take out a loan to make the payment with.
- Repairs (auto, household, etc.)
- Urgent medical/dental care
Regardless of how or when you incur expenses, bills can be categorized by whether or not the payments are due on a relatively fixed schedule with fairly consistent payment amounts.
Regular - Regular bills have payment amounts that are fairly consistent and for which payments are due on a predictable schedule. The payment amounts for regular bills may vary slightly from one payment to the next, but there is a predictable maximum for each payment that can be used for budgeting. Examples of regular bills with fixed payments are:
- Rent, house payment
- Entertainment (internet, Dish, Netflix, Amazon, Hulu, etc.)
- Loan payments
Examples of regular bills that normally have variable payment amounts could include:
Unscheduled - An unscheduled bill has either sporadic payment amounts and/or payment due dates that are on an inconsistent schedule. Examples include:
- Medical/dental care
- Household services (plumbing, electrical, pest control, etc.)
- Auto expenses (service, tires, etc.)
- Seasonal lawn care
Bill payments for regular bills are, with rare exception, universally scheduled on some form of a monthly schedule. Changes to a monthly due date are typically the result of a due date falling on either a Saturday, Sunday, or holiday. When that happens, the due day might be moved to either the following or the preceding workday.
Regular bill payment due dates are typically scheduled on the same day:
- Each month
- Quarterly (each third month)
- Semi-annually (each sixth month)
- Annually (each twelfth month)
- Multi-yearly (in the same month every so many years)
A due date for a bill is the date by which the payment is to be received and completely processed by the payee.
The date on which you send or personally make a payment doesn’t matter. If the company to which you are making a payment cannot process your payment on or before your due date, your payment is late. For example, having a payment postmarked a week before a payment is due does not matter if the payment does not reach the company on or before the date on which it has to be received and processed.
The main reason for paying attention to payment due dates is that late payments often result in you being charged a late payment fee and/or paying interest. In the case of credit cards, for example, when a payment is one day late, in addition to a late fee, you will also be charged interest on your total unpaid balance before the payment amount is deducted.
Not paying your bills on or before the payment due dates can cost you a great deal of money.
When planning to make bill payments, the method of payment will have a lead time. This is the time before a payment is due when a payment must be submitted to ensure that the payment is received and completely processed on or before the due date.
For example, a person lives in Idaho and mails a monthly payment to a subscription service in Florida. Payments are due on the fifteenth of each month. The usual time for a letter to get from Idaho to Florida is four days. Payments could be mailed on the eleventh, but that is assuming payments will always be received within four days and that the company will open and process the payment before the close of business on the same day the payment is received.
In the example, there is no allowance for unexpected mail delays, due dates falling on weekends and holidays or for the eleventh, the date the payment is mailed, falling on a day when there is no mail service. When the fifteenth, the due date, falls on a Saturday, does the company move the due date to the following Monday? If not, payments that could have arrived on Saturday will probably not be received until Monday. Because of the weekend, a late fee is charged.
One solution could be to always mail the payment that is due on the fifteenth by the first of the month, thus allowing a two-week lead time. But that does not eliminate the ever-present hazard of a payment getting lost in the mail.
A much better solution would be to take advantage of electronic payments which are often referred to as autopay.
If a company has an autopay option, using this option puts the responsibility for making payments on time with the company. There is no payment lead time. Late fees are avoided regardless of whether or not a due date falls on a weekend or holiday.
Alternately, if a company accepts credit card payments, make the monthly payments online on the company’s website or by calling customer service on or before the due date. Late fees are still possible if you forget to make a payment on time, but the concern about possible delays with mailed payments are avoided.
Not paying attention to bill payment lead times can result in late payments, which can cost you a great deal of money.
There are many options for making bill payments which are differentiated primarily by how much effort is required on your part.
Cash withdrawal (no lead time) – You authorize automatic payments to be made with electronic withdrawals directly from your checking account.
Bill pay check – You use your bank or credit union’s online bill pay service to schedule the automatic mailing of checks that draw from your checking account.
Auto credit card (no lead time) – You authorize payments to be automatically charged to the credit card on file with your account.
Internet (web browser)
Cash transfer – You transfer money from your checking account using an online money transfer service like PayPal or Venmo.
Bill pay check – You use your bank or credit union’s online bill pay service to arrange for a check, which draws from your checking account, to be mailed.
Credit card – You charge the payment to a credit card.
Manual (payment is mailed or you hand deliver)
Check – You write a personal check which draws from your checking account.
Money order – You purchase a money order from a store like Walmart or from the Post Office using cash or a check that draws from your checking account.
Cashier’s check – you get a check, that is guaranteed to be good, that is issued by your bank or credit union (the money is withdrawn from one of your accounts at the time the check is issued and held in escrow by the issuer so that the check is guaranteed to clear when cashed).
You pay in person.
You pay a fee to a business, like Walmart or Western Union, that offers a money transfer service.
Giving yourself the same allowance each week is key to keeping your budget both reasonable and stable. Doing so may be the most important step you can take toward successfully managing your everyday money.
How you spend your weekly allowance is entirely up to you. You neither plan how you will spend your weekly allowance, nor do you keep track of how the money is spent. The goal for your weekly allowance is to give yourself an amount for out-of-pocket spending that will last a full week with very little, if any, left over.
You can change your allowance at any time, however, settling on a consistent amount as soon as possible is vital when starting a new budget space.
You will be adding the checking account available balance to your budget when you are preparing to pay bills for the first time. Until then your "Net cash flow" numbers are lower by that initial available balance because your budget's "Unallocated balance" is zero. Keep that in mind while deciding on the amount of your allowance.
To see how your "Net cash flow" will change with different allowance amounts, change your allowance setup as many times as necessary. When the amount of your weekly allowance appears to fit well in your budget, you are done adding your allowance.
Continue your start-up over in the "Getting started" section of the user guide while we work on finishing this page