How to Create Personal Balance Sheet and Budget Plan for Several Accounts

Question

I think the idea suggested in book Secrets of the Millionaire Mind that using several bank accounts to handle money is a good idea. So I opened a few bank accounts and tried to create my personal balance sheet and budget plan to track the money flow for each month using Excel Sheet. However I found the Sheet is very difficult to follow, as there are different accounts. How do I make a nice one, especially good for handling money flow in several accounts? Example is appreciated.

Let me explain about my financial status. I have 3 bank accounts now: two normal saving accounts (named A and B) and one high-interest-rate saving account (named C).

Income:

• Salary, account A, monthly

Expenditure:

• Home morgage, account C, monthly
• Credit card payment, account B, monthly
• Investment fund, account B, monthly
• Insurance, any account, half year
• Tax, any account, yearly
• Loan, account B, monthly (for 12 months)

My goals are

1. to save some money to account C for reservation;
2. save some money each month for large expenditure (for example for family vacation).
3. Reserve enough money to pay the insurance and tax which happens not monthly.

Thank you.

Answer 1

As your financial situation becomes more complex, it becomes increasingly more difficult to keep track of everything with a simple spreadsheet. It is much easier to work with software that is specifically designed for personal finances.

A good program will allow you to keep track of as many accounts as you want. A great program will completely separate the different account balances (location of the money) from the budget category balances (purpose of the money). Let me explain:

When you set up the software, you will enter in all of your different bank accounts with their balances. Perhaps you have three savings accounts and two checking accounts. It doesn't matter. When you are done entering those, the software will total them up, and the next job you have is assigning this money into different budget categories: your spending plan. For example, you might put some of it into a grocery category, some into an entertainment category, some will be assigned to pay your next car insurance bill, and some will be an emergency fund. (These categories are completely customizable, and your budget can be as broad or as detailed as you wish.) When you deposit your paycheck, you assign that new income into budget categories as well. It doesn't matter at this point which accounts your money are located in; the only thing that matters is that you own this money and you have access to it. Now, you might want to use a certain account for a certain budget category, but you are not required to do so. (For example, your grocery category money will probably be in your checking account, since you will be spending from it regularly. Your emergency fund will hopefully be in an account that earns a little higher interest.)

Once you take this approach, you might find you don't need as many bank accounts as you thought you did, because the software does the job of separating your money into different "accounts" for different purposes.

I've written before about the different categories of personal finance software. YNAB, Mvelopes, and EveryDollar are three examples of software that will take this approach of separating the concepts of the bank account and the budget category.