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Calculating Expenses Using Quicken
Hi Karen,
Saw your article on the Dollar Stretcher website -- more importantly, the footnote about your expertise in Quicken. I am not using the current version. I don't know what version it is. I think I have updated once, probably about 2 years ago. Anyway, I am frustrated with the budgeting mechanism. This is the year that we will really get our money under control. I would like to start by examining last year's expenditures, but the categories are so wacky! I didn't really set up categories (years ago) with a budget line in mind. Is there a way to go back through my '97 records on Quicken and recategorize, particularly into fewer categories?
Rebecca
Yes, there is a way to do this. In fact, that is exactly what I did when I started using Quicken several years ago. Start by doing a quick category report for each category in your list. If the report is very long, customize the layout with subtotals by payee (if too many details make you dizzy or confused, try clicking the "totals only" box when you do subtotaling). Those that have relatively few items (or payees) in them are candidates for being merged into another category. The User's Guide explains how to do this quickly and easily.
Then there are some categories than can be logically grouped together. These you can change into sub-categories of a larger category--this looks nice on reports because you get subtotals for the subcategories and a total for the group category. Simply add a new category name for the containing category, then change the categories you want to group together into subcategories of the new category. For my own Quicken file I have decided to put no transactions into categories that contain subcategories. This seemed less confusing to me when setting up the budget.
You should end up with approximately 15 to 18 major expense categories, which might consist of 30 or more including subcategories. Here is my list:
If I've counted correctly that is 37 (expense) categories in all. I doubled up Christmas with Vacation--since one comes in July and the other in December, it works out "cashflow-wise". In the "Misc" category I include the following expenses: allowances, personal care (toiletries, hairdresser, drycleaning), Jamie (my DH), school & office supplies, books, subscriptions (newspaper and magazine), postage, gifts (birthday and wedding), and other (with explanation). I could have subcategories for each of these, but I put notes in the memo field instead. If I want to find out how much I've spent for one of these I can customize the "Itemized Category Report" by choosing the "Misc" category and by requesting a match in the memo field with one of those phrases. I include this as an example of how I have kept the number of categories to a minimum.
"Recreation" is one of the categories that can include a great many types of expenses: video rental or music CD's, sport events, movie or concert tickets, cost of bowling, golf, health club (or other club) dues for yourself or spouse, ballet lessons for your four-year-old, or soccer league fees for your twelve-year-old, developing and film for the camera, craft supplies, etc. You get the idea.
Do not have a category called "Cash". Instead, set up a Quicken account and track all of your cash purchases in it, just like you do for checking and charge accounts. Note: I keep the details in a ledger book, and weekly update the Quicken cash account with summary (split) transactions.
Make "utilities" a subcategory of "Home" and include in it electricity, natural gas (or heating oil), sanitation (trash pickup), water and sewer, instead of "utilities" as a separate category with subcategories. You eliminate two or more categories and on reports "utilities" is grouped with other "Home" expenses where it belongs, instead of down at the bottom (alphabetically arranged). If you want to know how much you spent on each type of utility you can customize a category report with subtotals by payee.
Another way I have reduced the number of categories is to set up Quicken "accounts" for things like "Savings", "Prepaid College Fund", or for liabilities like "Home Mortgage". Payment on the principal is a "transfer" to the liability account, reducing the outstanding balance, while interest paid is charged to "mortgage int", one of the subcategories under "Home". If you do this you will have to budget for the transfers when you set up your Quicken BUDGET, and you do have to set up the liability accounts through the "Set up Loans" screen accessible from the ACTIVITIES drop down menu. (You have to fill in several different screens, so be sure to follow directions in your "User's Guide").
Karen Jones answers your questions about budgeting and using Quicken. If you have a question please email her at JJones@xtalwind.net.
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