I’ve been fielding reader questions at Get Rich Slowly for almost six years now. In that time, we (you and I) have answered 202 questions, most of which have been about the Big Picture, about things that apply to everyone. Sometimes, though, it can be interesting to get a bit more specific.

For instance, Julie wrote recently with a question that, by her own admission, is technical and fussy. Well, let’s be technical and fussy for one day, shall we? Here’s what she writes:

I currently have several different targeted savings accounts that I fund with either direct deposits from our paychecks or automatic withdrawals from our checking accounts. I use an Excel spreadsheet as a budgeting tool, partly because I didn’t want to spend on software, partly because I was familiar with Excel, and partly because it’s simple to download my transactions from my credit union. I can create categories within the online tool to compare to my spreadsheet based on what I want to track.

As I currently do things, the money that goes to the targeted savings accounts is coded as “Savings”. When I spend anything on something from those accounts — for example, the escrow account for our property taxes and insurance — I code the withdrawal as a negative expense in Savings to correspond to the expense in the Insurance or Taxes category. At the end of the month, it comes out a wash, but at the end of the year it looks like I have a negative balance in savings when in fact we saved aggressively.

Another time this is an issue is when we dip into the emergency fund (hello, new furnace!). At the end of the month, it’s a wash but at the end of the year we show a negative balance on the spreadsheet.

So, I guess the question is: When you withdraw from Savings, is that income? Or is it negative Savings?

I receive quite a few questions like this: People have developed their own tracking systems, and they want to know what I think. What I think is that each of us does this differently. There’s no one right way to track your finances. The important things are to:

  • Be honest. Make sure your system accurately reflects your financial health. Don’t play with the numbers to fool yourself — or your spouse.
  • Be consistent. Once you decide to track things a certain way, stick with your system. In Julie’s case, that might be an argument to stick with the “negative savings” method.
  • Aim for effectiveness. If your system is ineffective — if it doesn’t give you the info you need, or if you don’t use it — then there’s no use keeping it. So this might be an argument against Julie’s current system. Maybe she needs to switch to something that doesn’t leave her confused.

It’s also helpful if your system plays well with others, but that’s not an absolute requirement. I’ve customized my Quicken installation enough that I can’t just download info from the bank; I have to enter it by hand. I’m okay with that, though. Just be aware that the more you customize, the more you’re tying yourself to your customized way of tracking things.

As for Julie’s specific case, it sounds to me as if she may be tracking cash flow — the ongoing movement from one account to another. This can be useful in some cases, but when I am looking at bank accounts, what I really care about is the balance, not how much is flowing in and out. (Well, sure I care about the cash flow, but for budgeting and reporting, it’s the balance I want.)

For instance, my targeted savings accounts are:

  • Emergency Fund
  • Mini Cooper Replacement Fund
  • Travel Fund

Sometimes I have more accounts, but those are the three I have right now.

When I route money from my checking account to a savings account, my savings account balance increases. But when I take money out — to travel to Peru, for example — my savings account balance declines. At the same time, that money gets spent somewhere else. (In this case, I code it as Vacation.)

So, to answer Julie’s question, I’d view this not as income but as negative savings. To me, it’s income when it enters my possession. Once it’s in my possession, it can’t be income again, can it?

In some ways, saving is just delayed spending. I’ll build my savings for a car over the course of years. When I pull the money out of savings to buy the car, that money isn’t income. I’ve already earned it. It was money that was in savings, but now is being spent elsewhere.

Is all of this as clear as mud? How would you handle Julie’s dilemma? How do you decided what is income, what is savings, and what is spending? When you take money out of savings, is that income? Something else? I know many GRS readers have created customized spreadsheets to make things easier. Is that you? Can you describe your system for us?

This week, let’s help Julie be fussy. Next week, we’ll return to questions about the Big Picture.