Step 3 Monthly Tabulation

[Janet]

Hi Folks,
How do you handle credit cards in your monthly tabulation when comparing money spent versus what you actually have at the end of the month? I am getting stuck on step 3 because I dont know how to handle my credit cards when considering that at the beginning of the month, there is a debt, then there are new transactions, and at the end of the month, there is a different amount of debt.

I have been using Mint.com to obtain the summaries of the monthly spending in the categories I created. Mint counts a purchase on the credit card as spending for that month, even though I may pay of the bill next month. I believe this is why I cannot get my monthly tabulation to add up to my actual money at the end of the month.

[jania]

Because I only put on my credit card what I already had cash for (using credit card for things like on-line purchases) I would deduct the amount from my tabulations at the time of the purchase, even though the actual bill might come a month later. My money is very simple so this worked for me.

[fidgiegirl]

Welcome Janet. I have to say that it's been so long since i was doing my tracking that I don't remember how I used to do it Hoping to get going again, though. Stick around!! I noticed you only made this one post and didn't get many replies so I at least wanted to say hello and hoping to hear from you again.

[HKPassey]

Hmmm. If anybody comes up with a really nifty way of doing this, it might be really useful to write it up for the wiki site as well. Since credit cards have become so much more central than they were back when the book was written, it really deserves some thought.

Helen

[catherine]

Well, I've come to realize that most credit card payments are "transfers" from one account for another, as long as you have accounted for the credit purchase as an expenditure. So, say I buy a book today on Amazon which is tied to my credit card. I record that I spent 9.99 today. When I wind up paying my credit card bill, which has that transaction on it, accounting-wise it's merely a transfer from your checking account to the credit card account--but no "spending" has taken place, because you've already recorded the expenditure back when you bought the item.

For the purposes of YMOYL tabulation, looking at Figure 3-2 in my book, I would do it this way:

Part 1, This would be all your cash and checking/savings balance, as it is shown in the Figure. Then add income. With regard to expenses, I would show what you actually purchased, whether it was on credit or not--it's the only way you can really track what you spend. As long as you pay the credit card that month, you're total income and expenses will balance at the end of the month

If you are paying off PAST DEBT, you can have a separate category for that, and treat the pay-down of that debt as an expenditure.

Easiest way to get around that is, don't use credit cards, unless you absolutely pay them off each month.

The YNAB software (www.ynab.com) factors all that in and pretty much describes what I'm explaining here.

[RoseFI]

I absolutely agree with Catherine. You want to record in the month you purchased. It's the most accurate way of knowing how your spending fluctuates (so you can plan for April -- always a brutal month in my household!).

And echoing also on the "past debt" category if you're just starting out -- the more that gets recorded in that expense category, the better -- and how often do you say that? Don't forget your wall chart -- that's how I got rid of debt completely and kept it away. Nothing like seeing that line go down to zero. (The balance line is what I charted, not the monthly pay down. Each month the balance was reduced by whatever past debt amount was "expended" that month.

Cheers!

[Janet]

Thank you all. I was able to tackle this and decided to record the transaction in the month that I purchased it. I treated the credit card payment as a transfer, as Catherine suggested. The key to minimizing errors is knowing the debt at the start and the end of the month. My billing cycle ends on the 25th, so I had to go through each bill and only include charges that occurred that month. It got tricky because some months I paid the bill on the 27th and others just at the start of the month. So some months it seemed like I paid off my credit card twice, when really, there was a grace period. Anyway, to determine the actual money I have at the beginning and the end of the month, I had to determine the exact amount of debt I had on that day so I paid close attention to when the charge posted.
Happy to be here in the forum and keep working these steps. We have already reduced our expenses quite a bit and we are really enjoying watching our savings grow. As a side note, we did discover that mint.com records the transactions correctly but does not tabulate them right in the TRENDs tab. It was about $400 off.

[RoseFI]

I was able to tackle this

Congratulations -- and it will just get easier from now on re: cut-off dates.

As a side note, we did discover that mint.com records the transactions correctly but does not tabulate them right in the TRENDs tab. It was about $400 off.

What a headache Thanks for the warning!