How can I show loan principal payments in my budget

Jan's Avatar

Jan

20 Aug, 2019 06:06 PM

Budgeting principal payments and other transfers into and out of asset (such as cash) and liability accounts is necessary to correctly do a cash flow budget. I don't use the program to deal with net worth any more than I did with Quicken.

I am retired and need to project at the beginning of the year how much money will be needed from retirement and other asset accounts. At the end of the year I need to see how I did compared to the budget so that I can do a reasonably accurate budget the next year.

  1. 1 Posted by mhoggie on 21 Aug, 2019 12:33 PM

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    just a user,

    Budgeting loan payments and account transfers is a continuing issue with MD for the last few years. Currently MD will not let you pick up any transfers or payments in the budget if the loan or account is setup in MD. So you find yourself in the same boat if you try to do any budget tracking between accounts. But there are work around methods that you can use to pick up that activity in your budget. One way I use to pick up those transfers is to add an additional category to represent the payment or transfer. Then adjust the transaction using a null category.
    For instance:
    I want to budget my XXX credit card payments.
    I create a new category called XXX payments.
    You will also need to create a NULL expense category.
    When I create a monthly reminder to make my payment, I make the payment using the XXX payment category, then additionally to the actual XXX credit card. This would cause the transaction to reflect a double payment amount but then I add a 3rd "null" category to offset the amount.
    Now my credit card payment is made to the credit card account with the additional payment category that I can budget. Just set up a budget amount for the XXX payment and activity is picked up.

    I attached an example below.

    Tracking a loan payment when the loan or mortgage is set up in MD is a bit trickier because MD does not allow the additional category needed when the reminder is set up by the loan account. To track an MD loan account, you have to create a special dummy bank account and make the payments to that dummy account including the additional budget category and offset. Then set up your regular mortgage/loan payment to pay from that dummy bank account. I have both transactions set up to auto commit, so it's all automatic and I just watch the activity on my budget status bar.

  2. 2 Posted by Jan on 21 Aug, 2019 02:35 PM

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    Having recently switched from Quicken, I am confused. Does the MD team not understand a cash flow budget or does MD think it is not important?

  3. 3 Posted by mhoggie on 22 Aug, 2019 12:34 AM

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    just a user,

    I'm not sure what the issue is with MD. They did track account and loan transfers using the old style mixed interval method until sometime in 2017. Many of us have complained but to no avail. I suggested that no one with MD support must using the budget feature because I've never seen any budget applications that exclude budgeting loan payments. You can budget a rent payment, but not a mortgage payment. You can budget a car rental payment, but not a car loan payment. Just makes no sense. Also the default budget style has lots of problems. It's slow and you can't project a budget beyond the next month. I use the old style mixed interval with my transfer work around methods and it works for me. But it would be exciting to see someone with MD to address these issues. The 3rd party MD reviews mention the budget feature, but I doubt any realize you can't budget your loan payments or transfers.

  4. 4 Posted by Jan Derdiger on 22 Aug, 2019 01:04 AM

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    I agree. Hopefully someone from MD will respond. I posted another question
    related to the mixed interval format.

  5. 5 Posted by JR on 23 Aug, 2019 05:59 PM

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    Hi Jan - I'm just a user as well.

    Specific to budgeting your mortgage payment:
    Are you using the "mixed interval" budget format? I have been budgeting with MD for 10+ years and have only used the mixed interval format (although I set them all to the same interval). I also use the budget bars on my home screen. It has always worked great for me to budget my mortgage principle payments, and I have never needed the complex workarounds that mhoggie suggests.

    If your mortgage is set up as a loan account type, you should be able to budget payments to this account with the mixed interval budget format. It has worked fine for me for years, though I find a lot of conflicting information on this forum suggesting others have had trouble. I'm not sure what to say other than it works fine for me, and I hope I can help you get it working fine for you.

    JR

  6. 6 Posted by JR on 23 Aug, 2019 06:22 PM

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    One clarification to what I said above:
    The budget bars on the home screen can only show Categories (Expense or Income), they will not show Accounts (transfers between accounts). But you can add transfers between accounts to your budget, and they will show in the budget window and in budget reports.

    Similarly to budgeting your mortgage, if you want to budget a certain amount into or out of a retirement account, you can do that in your budget. It won't show in the budget bars on the home screen but will show in the budget window (from the sidebar) and in the budget report (also accessible from the sidebar).

    JR

  7. 7 Posted by mhoggie on 24 Aug, 2019 03:35 AM

    mhoggie's Avatar

    JR, I think the budgeting feature worked well for mortgage and loan payments until windows build 1667 in early 2018. I check every once and a while and its still broke.

  8. 8 Posted by JR on 24 Aug, 2019 03:59 AM

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    Ah! That could be it. I am on a Mac and have never used MD on Windows.

    So when you are setting up your budget in the Budget Manager, does it not allow you to select an account under the Category column?

  9. 9 Posted by mhoggie on 24 Aug, 2019 04:34 AM

    mhoggie's Avatar

    Yes, you can select the account, but no amounts are picked up by MD related to budgets. Activity won't appear in the budget reports, status bar, or budget status columns. MD just ignores any account to account activity in the mixed interval setup just like it does in the new default budget setup. Prior to windows build 1667, budgeted amounts did work for loan payments and transfers when using the mixed interval setup. I'm surprised its still working on the Mac version unless you are still using an older build. Everytime we complain, we are told MD will not allow budgeting account to account activity because of MD's philosophy that your total assets don't change because of account to account transfer. I guess you could argue that point, but it really messes up having a real budget where you are trying to track money activity.

  10. 10 Posted by JR on 24 Aug, 2019 05:06 AM

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    How odd. Yes, it’s working fine on Mac in the latest build, 2019.3 (1880).

  11. 11 Posted by Jan Derdiger on 24 Aug, 2019 06:18 PM

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    jr and mhoaggie,
    Thank you. It sounds like we need to hear from MD staff. I am starting to
    be bothered that they aren't participating in this discussion. I just
    recommended MD to a good friend.
    Jan

  12. Support Staff 12 Posted by Sean Reilly on 26 Aug, 2019 11:08 AM

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    There shouldn't be any difference at all between this sort of thing on Windows or Mac. mhoggie, would you be able to let me know which specific budgeting screens are not showing the account-to-account activity?

    As the lead developer I can promise you that it is NOT our philosophy to ignore account-to-account activity in budgets, because of a lack of change to net worth or otherwise.

    Thanks,
    Sean

    --
    Sean Reilly
    Developer, The Infinite Kind
    https://infinitekind.com

  13. 13 Posted by Jan on 26 Aug, 2019 04:26 PM

    Jan's Avatar

    Sean,
    I started this discussion with question about showing principal payments for mortgages and other loans in budgets.
    Your comment is the first by someone from MD/IK team.
    In response to your comment I ask:
    Then why can't account to account transfers be shown in the "New" budget format?
    Thanks,
    Jan

  14. 14 Posted by mhoggie on 26 Aug, 2019 04:36 PM

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    Thanks Sean,

    I’ll send you some screen prints tonight,

    Mike

    Sent from my iPhone

  15. 15 Posted by mhoggie on 28 Aug, 2019 12:49 AM

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    JR, I did want to amend some info I gave you earlier. On my Windows build 1888, you can budget the principal of a loan payment, and you could set up a special interest category to track the interest. But you can't track the full payment. The principle and interest amounts change every month so I'm curious how you are using that in your budget on the MAC. Also I notice you can track credit card payments, but the budget output reports all the expenses and payments to the credit card, so the result does not track the payment which makes it useless for budgeting. This is all on the mixed interval method and I'm curious if you are seeing the same issue on the Mac version.
    Thanks,Mike

  16. 16 Posted by JR on 28 Aug, 2019 04:22 AM

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    Hi Jan - Currently only the older "mixed interval" format supports budgeting account-to-account transfers. The newer budget format does not (yet) allow accounts to be added to a budget. From Sean's comment on another post I believe he is aware of this and intending to resolve it in the future.

    For now you can track loan principle payments and transfers into or out of investment accounts with a mixed interval budget. This is how I've been doing it, with each interval set to one year.

    JR

  17. 17 Posted by JR on 28 Aug, 2019 05:15 AM

    JR's Avatar

    Hi Mike - Yes that's right. Let's talk specifically about mortgages. The interest should be tracked with a category and the principle repayment should be tracked as a transfer into the loan account. You would enter each of these as separate lines in the budget. For yearly budgeting, I usually just estimate each amount: total interest, and total principle. I don't worry about getting it exact. Taking the most recent payment and multiplying by 12 is a good start, then I usually round to the nearest thousand.

    Here's what I typically do:
    Using the reminders, I have a recurring mortgage transaction that automatically enters into my checking account as a future transaction. The total amount of this transaction is known ahead of time (my monthly mortgage payment) so I can schedule it out in advance. I have it set up as a split transaction, similar to what you show in post #1 above, but I use one line for the interest (category) and one line for the principle (transfer to the loan account). Once the transaction hits my bank account, I log in to the mortgage holder's website to find the exact amounts for interest and principle, and then I go back and update this into the split transaction. After this, I confirm that Moneydance shows the same remaining balance on the loan as the bank shows.

    OK now regarding credit cards:
    I personally do not budget credit card payments (transfers to credit card accounts). I do budget things like gas and food and education or recreation expenses, which I use a credit card to pay for, but I do not budget the credit card payments. I just make sure I have well enough in my checking account to pay whatever I owe on the credit card. If you are carrying a balance on a credit card and paying monthly interest charges on it, you could create a category for "credit card interest" and enter that in the budget. But you would not enter the full credit card payment. Rather you would add "food" and "auto" and "education" etc in the budget; the budget doesn't care if you use checking or credit to pay for these things.

    OK one last bit that you didn't ask for but I hope you'll tolerate:
    I have learned to never ever carry a credit card balance and always try to avoid paying credit card interest whenever possible. If anyone reading this post is in a situation where you are behind in credit card payments and are being charged interest, I applaud your effort to budget and track your finances with Moneydance. I have seen Dave Ramsey's "baby steps" lead numerous people out of credit card debt and I highly recommend them to anyone trying to gain financial freedom:
    https://www.daveramsey.com/dave-ramsey-7-baby-steps

    My apologies, Mike, if the Dave Ramsey bit does not apply to you. I only bring it up to say that paying off your credit cards in full each month and never paying interest is going to be much better in the long run, and will also leave you with a cleaner budget in Moneydance. Cheers!

    JR

  18. Support Staff 18 Posted by Sean Reilly on 28 Aug, 2019 08:16 AM

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    Hi JR,

    Thanks for the complete description of how you use budgets. I completely agree with all of it, especially the part about budgeting spending from the credit card to categories instead of the payments to the credit card. If we enabled budgeting payments to credit cards then those payments would be budgeted twice - once for the cc payment and once when the money was actually spent on a category.

    Thanks also for Dave Ramsey's link. That goes into my list of topics to add to the company blog!

    Thanks,
    Sean

  19. 19 Posted by mhoggie on 28 Aug, 2019 11:06 AM

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    Thanks for your description JR on how you are using the budget feature. I approach the credit card issue a little differently. I don't carry any balances on my credit cards but I wanted to keep track of my monthly credit card use. So I was trying to track credit card activity from the point of how much I was paying each month as opposed to tracking the various expense categories. I guess its more of watching cash flow overall than specifically following any specific expense. If I saw my cash flow ballooning, I would run reports to see more detail. That's also why I was following the the mortgage payment instead of the principle and interest separately. I just wanted a way to follow the monthly cash flow related to the mortgage instead of drilling down to the principle and interest. I found ways to do both of those things using MD with a couple methods, but it was easier a few years ago when you could track those payments directly. I appreciate Sean's comment to avoid the budget issue where you would might budget a category and the payment which would duplicate the activity. I guess my method is more of a cash envelope budgeting method. I just want to watch where I'm sending the money and deal with the specifics separately. Thanks for your description, it helps me understand how others are using the MD budgeting tool.

    Mike

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