Reconciling your Savings

Last week, we discussed how to reconcile your checking account based on your projections.  This week, we will begin reconciling the savings account as well.

In our projections example, the first month we transfer to the savings account is April.  To reconcile this transaction, begin by reconciling the checking account the same as previous months. 

When you get to the 'Transfer' line, C37 in our example, we will use an equation to get the total amount to transfer.  You could also grab the transfer amount from the Projections page but I prefer to use the equation because it acts as an extra check point. 

Because we want to keep $1500 in the checking account at all times, we want to transfer everything over $1500 to the checking account.

To do this, subtract $1500 from the running total.  This is the amount that you want to transfer.  Make sure to put this amount in as a negative amount since we will be taking it out of the account. 

 Here's the equation:

• =-(D36-1500)

Add a tab titled 'Savings' and create the same header as we did for the checking account.  Add the Transfer as the first transaction.  Continue adding on for following months.

Reconciling Your Monthly Expenses

Last week, we learned how to use our spreadsheet to build a savings account or rainy day fund.  This week, we will use our spreadsheet to reconcile our monthly balance of the new checking account.

Let's begin by labeling our tabs.  I've labeled our current worksheet 'Projections' and then labeled a new worksheet 'Checking'. 

 Open the Checking account tab and begin by building the headers.  I started my labels in cell A1 and used the following labels:
A1: Date
B1: Transactions
C1: Amount
D1: Running Total

I also made my row 1 Bold because I find it easier to read the table if my headers are bold.

 From there, we will add the information from our 'Projections' tab into our checking account.  It is assumed that all transactions that occur throughout the month are done through the checking account.

The order of the transactions here doesn't need to match the order of the transactions in the projection's tab.  Use the transaction date to create the order for your transactions.

To enter the amounts, I use a function rather than entering them by hand to avoid errors in typing.  For income, I type the equals sign, click on the projections tab, then click the cell I want.

• For Paycheck 1, the equation would look like this:  =Projections!B3

For expenses, I use the same process but add a negative before clicking projections so the amounts will be debited from the account

• For January's Rent, the equation would look like this: =-Projections!B8

 To fill in the running total (I made all of column D bold), we need to start by pulling our first transaction.  To do this, type the equals sign, then click on C2 in the same tab. You can also type the equation =C2.  This is the only cell you will use this equation.

In cell D3, type =D2+C3 or click on the cells to add the cell numbers to the equation.  This will take the previous balance in the checking account and the new transaction.  Fill down using the methods discussed earlier in the excel budgeting series to complete your running totals.

Make sure that your end balance for the month is the same as the end balance for the month in the Projections tab.  (This example's end balance is $475.20).  If they are not the same, your account does not balance and the transactions need to be double checked for accuracy.

Use the same process to add additional months, making sure to double check your totals. In the above example, I added February and March.  Next week, I will show how to include the transfer to the savings account that happens in April of our example.

Side Note:  I also like to use colors to separate my months so I can quickly glance and see the entire month.

Using Your Excel Spreadsheet to Build Rainy Day Savings

Now that we have our savings account created and have determined our saving schedule, we can use our spreadsheet to predict how long it will take to build a Rainy Day Savings.

It is good practice to always have six months worth of expenses in your savings account just in case something unexpected happens.  We could also include the money in the checking account, but I would always prefer to air on the side of caution because my motto is 'better safe than sorry'.  Because of this, I will only include the savings account total.

In our example, we know that the monthly expenses are roughly $1050.  Six months of expenses would be $6300.  By looking at the savings account total in column M: December, we see that the total amount in the savings account is $3900.  This is not enough to last six months.

To project further, we will need to add another year to our example.

Using the techniques from before, we will highlight all of the the December column (M1:M21) and drag across to column Y.  Highlight all cells in the sheet by pressing the Triangle in the top left corner then double click on  line between the column headers to widen the fields and remove the pound signs.  *If you have trouble with this step, please refer to the first tutorial's video.



Next, add a column between December and January to separate the years.  You can add the year in this column if you would like.  Example: 2016.

Now that we have our projections extended for another year, we can see that the savings account will reach $6300 in June of year two.

If we were including the checking account, the savings account will reach $6300 in February.  None the less, the more savings the better because you never know what will happen next.

Working with Your Excel Budgeting Spreadsheet

Last week we made our spreadsheet a bit more robust by adding in a Checking account and Savings account rows.  If you need to review, you can find the post here. 

This week, I will explain how to use this spreadsheet on an ongoing basis as your expense tracking tool in addition to being a budgeting and projecting tool.  

Let's start with the most fool-proof way of sticking to your budget and meeting your projections. Each month, in our example, remove $300 (the incidentals) from your checking account.  You can do this all at once at the beginning of the month or split it up.  Maybe $150 on the 1st and $150 on the 15th.  This all depends on your comfort level with managing your spending.  Here's the kicker:  DO NOT TAKE ANY ADDITIONAL MONEY OUT OF YOUR ACCOUNT.  Period.  Of course, occasionally there are emergencies such as a blown tire or a medical bill but, if it's not an emergency, don't do it!  

This money is yours for the month.  Use it however you please remembering that you will need to buy gas and groceries out of this money at some point. If you do not use all of the money in the month, decide what is best for you.  Would you rather hold it as your spending money just in case, save for a larger treat, or put it in your savings account. 

If you are trying to build credit but can't get approved, consider opening a secure credit card where you deposit your money into the account and you can only use how much you have.  With this option, you can have an automatic transfer that takes the money out of your checking account for you and deposits it to the secure account. 

Tracking your expenses is more than entering in about what you think your expenses will be for the month.  While this is a great tool for predicting, it only acts as a placeholder when it comes to utilization of your spreadsheet.  

My suggestion for tracking your expenses is to color code your cells.  For all income and expenses where the amounts change each time they occur, I change the text to Blue.  For all of the expenses with set amounts, I keep the text Black.  

As I get my bills and paychecks, I add the correct amount over the blue estimated amount and change the color to black.  This shows me that I have already accounted for the item and helps me track where I'm at in the spreadsheet so I don't have to look up to the months each time.  Once the month is complete, there should be no blue words left.  

Review

1. Take the incidentals money out of your checking account.

2. Update your spreadsheet with every new income or expense. 

How to Use Excel to Project Your Savings - Part 2

This is Part 2 of the ‘How to Use Excel to Project Your Savings’ series.  If you have not viewed the first post, you can find it here.

Now that we know how much is possible to save, let’s talk about how to stay on track with savings, starting with a bank account. 

I’d recommend getting a checking account to serve as a place to hold enough money to pay all of your bills for one month.  Having a checking account with enough money in it for one month’s worth of bills will allow you to use auto-pay on many of your bills if you desire.  This will free up a lot of your time and as we all know, time is money.   While creating your checking account, I’d suggest creating a savings account that way each month you can transfer money from your checking account to your savings account.  

Once your accounts are up and running, decide how much needs to be in the checking account for you to safely pay all of your bills without over-drafting.   I recommend always steering on the high side.  

In our example, the total Expenses are $1050.  Keeping the checking account end of the month balance at $1500 should be more than enough to cover all automatic payments.

Now, let’s get this on the books.

I start by changing my ‘Monthly Total’ color to black for ease of navigation, add a row below, then change my ‘Accumulated Totals’ row’s name to ‘Checking Account’.  Notice that in April, we will be at our target of $1500 in our checking account.  This means we will need to begin transferring to the savings account.

I create two additional rows below ‘Checking Account’ and title them ‘Transfer to Savings’ and ‘Savings Account’. 

In my checking account row, I will determine how much needs to be transferred to remain at $1500.  To do this, I will subtract $1500 from the checking account.  Because the first three months are not at $1500, there would be a negative amount.  You can either delete the negative amounts or use the IF function as I did.  =IF(B18>1500,B18-1500,0).  Note that our numbers are growing exponentially.  This is because originally we had accumulated all of our savings into our checking account.  We will adjust this after we add our savings account functions.

For the savings account, we want to add the amount we are transferring into the savings account to the previous savings account total.  =C19+B21  This equation begins in February because January does not have a previous amount to add the transfer to.  For January, just copy the ‘Transfer to Savings’ amount.

Next, I add a row for the checking account balance after the transfer.  For this, I will subtract the amount transferred from the checking account.  =B18-B19  As decided earlier, the checking account should always have $1500 in it after the transfer to the savings account.  Because this is now the end of the month total, I change the title of the row to ‘Checking Account’ and I change the row that had been called ‘Checking Account’ to ‘Checking before transfer’.  This is all just preference and can be changed as desired.

Now that our accounts are set up, we return to the accumulated savings that has caused our numbers to be incorrect.  Previously, we had added the ‘Monthly Total’ to the monthly total from the previous month to create our total savings.  Because we are no longer adding these totals together, we need to create a new equation starting from our first transfer into our savings account. 

To get the correct amount in the checking account prior to the monthly transfer, we will add the ‘Checking Account’ total from the previous month to the ‘Monthly Total’ for the current month and fill across. =F16+E20

When we fill across, now we will notice that in the ‘December’ column, we show $1500 in the checking account, and $3900 in the savings account, totaling $5400 as we determined in Part 1.

How to Use Excel to Project Your Savings - Part 1

Today I will be showing you “How to Use Excel to Project Your Savings- Part 1”. 

For this example, we will begin our projections in January and end in December.  We will assume that income is received twice per month and that expenses include ‘Rent’, ‘Water’, ‘Electricity’, ‘Phone’, ‘Internet’, and ‘Incidentals’ which could be groceries, gas, entertainment, etc.

Let’s start by opening a new document in Microsoft Excel.  We will begin by entering our projection period.   

In cell B1, type ‘January’.  By hovering to the bottom right corner of the cell, you will be able to click and drag the cell to the right until you reach M1.  Excel will automatically fill the series through December.

Next, much like an income statement, we will note our ‘Income’ and ‘Expenses’.   In Cell A2, type ‘Income’ then hit ‘Enter’ to go down a line.  Enter both paychecks on separate lines and then total the income below.  Expenses are entered using the same process.

I like to add some formatting at this point so I can navigate easily.  Click the square to the left of the ‘A’ Column and above the ‘1’ Row to highlight all cells then click between the ‘A’ and ‘B’ column to adjust the cells to fit the text.   Next, I bold the headers by highlighting the rows and using CTRL B.  Now we have the basic structure for our projections.

Let’s assume that each paycheck received is $750 and enter this into both cells B3 and B4.  In B5 we will use the sum function to add the two rows paychecks together.  I like to type ‘=sum(‘ and then highlight the cells I want to sum, but there are many options.  Notice that the total income for January is in bold.  Because I have my spreadsheet set to accounting, my numbers came up with dollar signs.  If yours do not, highlight the entire spreadsheet again then click the dollar sign under Home: Number.

Now enter in the expenses and sum the total.  We will assume the following:

Rent: $500; Water $50; Electricity $75; Phone $75; Internet $50; Incidentals $300.

I summed all of my expenses prior to adding in the incidental amount to ensure that I didn’t have a negative balance in my example.  It is not necessary to wait to enter this amount.

Now that we have all of January’s Income and Expenses into our spreadsheet, we will determine how much money is left after all of the expenses have been paid.  For the example, let’s assume all additional funds will be saved. 

Type ‘Savings’ in cell A16 then tab to B16.  In A17, we want to subtract our expenses from our income.  There are many ways to do this, but my preference is to type the equals sign, then click on the total income, type the minus sign, click on the total expenses, then hit ‘Enter’.  This shows us that the total savings for the month is $450. 

To take this a step further, we will keep a running total of the expenses throughout the year.  I labeled my running total ‘Accumulated Expenses’ then called the cell above by typing = then clicking on cell A16.

Next is the fun part, we will fill our numbers to the right and let Excel do the work for us.  To do this, highlight cells B3:B17; all cells with an amount.  Like we did with the months, hover towards the bottom right corner of the cell the click and drag all the way to the M column.   If needed, highlight all and expand the cells.

You will notice that our ‘Accumulated Savings’ column remained $450 through the entire spreadsheet.  This is because we only called our savings total and not any totals from previous months.  To update this line, we will begin in February, C17, and add February’s savings amount to the amount saved in January.  ‘=C16+B17’.  Now fill the equation from C17 to M17. 

I like to add colors to all of my spreadsheets to keep them easy to read at a glance but this is not necessary.  Now that the projection is complete, a simple glance at the month’s accumulated savings will show how much money is available and allow for planning of large purchases or more saving.  Who doesn’t like watching those numbers grow!?