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#470 - added section on Pay Yourself First strategy (#473)

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A go at #470
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Ruben Olsen Lærk
2025-01-08 19:53:20 +01:00
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2
docs/accounts/reconciliation.md
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@@ -16,7 +16,7 @@ Click the lock icon in the right hand corner of the account ledger.
![](/img/reconcile/reconcile-11.png)
Let's imagine that we have just checked our account balance for our Ally Savings account and the current balance is $1229.18. We enter the balance we want to match into the Reconciliation tool and press **Reconcile**.
Let's imagine that we have just checked our account balance for our Ally Savings account and the current balance is $ 1,229.18. We enter the balance we want to match into the Reconciliation tool and press **Reconcile**.
![](/img/reconcile/reconcile-2.png)

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docs/budgeting/credit-cards/carrying-debt.md
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@@ -6,4 +6,4 @@ If you have an existing credit card debt that you need to track and gradually pa
The simplest way to track preexisting credit card debt in Actual is to create a **Credit Card** category and set it to **Rollover overspending**. When you add your existing starting balance and any preexisting transactions to your credit card account you need to ensure that the category of those transactions is set to **Credit Card**. That way you can at any time look at the **Credit Card** category balance to see the status of your preexisting debt, and you can ensure that it's getting smaller over time.
Each month when you do your budgeting, _after_ you've accounted for all other necessary expense categories, you allocate however much you want to pay down on that debt into the **Budgeted** column of the **Credit Card** category. Then when you go to pay your credit card bill you can easily find out how much you should actually pay by taking the **Credit Card** account balance and turning it positive and then adding the current **Credit Card** category balance to it. If your account balance is -5500 and your category balance is -4500 then you know that you need to pay off 5500 - 4500 = 1000. This amount will be greater than what you had put into the **Budgeted** column in case you're simultaneously following the [Within the Budget](./index.md) strategy of pre-funding new credit card purchases, and you can without worries pay off the calculated amount knowing that the money has already been explicitly set aside for this specific bill.
Each month when you do your budgeting, _after_ you've accounted for all other necessary expense categories, you allocate however much you want to pay down on that debt into the **Budgeted** column of the **Credit Card** category. Then when you go to pay your credit card bill you can easily find out how much you should actually pay by taking the **Credit Card** account balance and turning it positive and then adding the current **Credit Card** category balance to it. If your account balance is $ -5,500 and your category balance is $ -4,500 then you know that you need to pay off 5500 - 4500 = 1000. This amount will be greater than what you had put into the **Budgeted** column in case you're simultaneously following the [Within the Budget](./index.md) strategy of pre-funding new credit card purchases, and you can without worries pay off the calculated amount knowing that the money has already been explicitly set aside for this specific bill.

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docs/budgeting/joint-accounts.md
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@@ -73,7 +73,7 @@ what are your common expenses regarding groceries, utility bills, dining out, gi
Both will then contribute their share of the joint expenses. This is called _planned income_.
But how do you find your just share? The most just way to do this is by percentage of normal income per partner.
If Bob makes € 4000 a month and Alice makes € 6000, the total income is € 10 000. Out of
If Bob makes $ 4,000 a month and Alice makes $ 6,000, the total income is $ 10,000. Out of
this, Bob will contribute 40% to the joint expenses. To compute the percentage for Bob: 400 (Bob's income) * 100 / 10000
(total income). Alice's percentage is 60%, found by subtracting Bob's percentage from 100.

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docs/contributing/writing-docs.md
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@@ -139,6 +139,15 @@ Docusaurus 2 provides translation using [i18n](https://docusaurus.io/docs/i18n/i
* **Time Neutral**: Use present voice, unless documentation is for experimental or unreleased features. Where time references are made, remove them upon release or removal of the feature. Example: _Filters can be used..._ instead of _As of June 2022 update, you can..._.
### A Short Style Guide
* Prefix monetary values with the $ (dollar) sign.
* Use the , (comma) sign as the thousands' separator.
* Calculations should never have the dollar prefix, nor the thousand separator signs.
* All headings must use [Title Case](https://en.wikipedia.org/wiki/Title_case) using the Chicago Manual of Style rule set.
### Format
* **Keep paragraphs short and focused**. Each paragraph should convey a single idea or concept.

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docs/getting-started/envelope-budgeting.md
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@@ -14,7 +14,7 @@ but also addresses some of its limitations.
One key difference is that traditional envelope budgeting often overlooks fixed expenses like rent, mortgage,
utility bills, and other regular payments. These fixed costs are crucial and must be accounted for to have a
complete picture of your finances. Actual Budget ensures that every fixed or variable expense is
considered. This comprehensive approach makes Actual Budget much more effective than the traditional cash-stuffing method.
considered. This comprehensive approach makes AB much more effective than the traditional cash-stuffing method.
A significant advantage of using Actual Budget is increased awareness of expenses.
Knowing where every penny of your money is spent is a decisive step towards financial control and stability.
@@ -65,17 +65,41 @@ are going, make changes. If you're happy, great! Keep budgeting to keep track of
A more detailed breakdown of how budgeting in Actual works is provided in the [budgeting page](/docs/budgeting/).
### Credit Cards
If you currently are carrying credit card debt in an on budget account you will need to capture that debt in a category.
A guide on how to handle that can be found in [the credit card guide](/docs/budgeting/credit-cards/).
### The Month Ahead Method
### The Month Ahead Strategy
It can be hard to know where to budget your funds when you get paid in the middle of the month, or get multiple
paychecks per month. One way to handle this is called the *month ahead* method. This consists of holding everything
you make this month and only budgeting it next month. The goal is to not need any of this month's income for this
month's bills, but pay all of this month's bills with last month's income. Actual makes this easy by allowing you
to hold your available funds for the next month by clicking the To Budget amount at the top of the budgeting screen
and selecting the "Hold for next month" option. You can read more about this on the budgeting page
and selecting the *Hold for next month* option. You can read more about this on [the budgeting page](/docs/budgeting/).
For example, if you make $ 3,000 this month, instead of spending it on this month's bills, you save it and use it to
cover next month's expenses. Most people cannot achieve this in one month, so the way forward is to build up a
buffer. Instead of aiming to save the full $ 3,000 in one go, begin by setting aside a smaller amount each month.
For example, if you can set aside $ 200 each month, gradually build your buffer over several months. As you save
more, you’ll start to pay some of next month’s bills with this reserve.
You can also read about this strategy in [one of our blog posts](/blog/2023-12-15-automate-your-budget-with-goal-templates).
### Pay-Yourself-First Strategy
The Pay-Yourself-First strategy focuses on saving a portion of your income before spending on anything else.
By making savings the top priority, this approach helps individuals build financial stability and prepare for unexpected
events. Automating savings, such as setting up automatic transfers, ensures consistency and reduces the temptation
to overspend. The strategy also encourages a balanced approach, addressing both immediate needs and long-term
financial security. Actual has functionality for [Schedules](/docs/schedules)
and [Budget Goal Templates](/docs/experimental/goal-templates#goal-directive) that can help you with this strategy.
For example, if you earn $ 3,000 a month, you might decide to save 20%, or $ 600, as soon as you receive your paycheck.
You set up an automatic transfer to move this amount into a savings account, ensuring it is set aside before you
pay any bills or make purchases. The remaining $ 2,400 is then available to cover your living expenses, such as rent,
utilities, groceries, and entertainment. This method guarantees that your savings goal is consistently met without
having to rely on what’s left at the end of the month.
### Credit Cards
If you currently are carrying credit card debt in an on budget account you will need to capture that debt in a category.
A guide on how to handle that can be found in [the credit card guide](/docs/budgeting/credit-cards/).
### Shared accounts
We have a guide on what to do when it comes to [strategies for handling joint accounts](/docs/budgeting/joint-accounts).
@@ -84,12 +108,10 @@ We have a guide on what to do when it comes to [strategies for handling joint ac
You can read more about these in the [returns and reimbursements guides](/docs/budgeting/returns-and-reimbursements).
## How to set up and use an envelope system with Actual Budget
Learning to budget using Actual Budget is straightforward, even
if you're new to budgeting. Here's a checklist for getting started:
if you're new to budgeting. Here's a checklist for getting started:
### 1. Establish budget categories
@@ -120,19 +142,19 @@ This average provides a realistic estimate of your spending and income patterns,
you to set initial budget values that reflect your financial habits.
For example, if you have € 1 200 to allocate for the month, your budget might look like this:
For example, if you have $ 1,200 to allocate for the month, your budget might look like this:
| Categories | Allocated (budgeted) funds | Explanation |
|-----------------|-----------------|---------------------------------------------------------------------|
| Groceries | € 300 | This covers your monthly food and household supplies. |
| Gas | € 100 | Allocated for fuel and transportation costs. |
| Dining Out | € 150 | Money set aside for eating out at restaurants or cafes. |
| Clothing | € 100 | Funds for purchasing new clothes or accessories. |
| Entertainment | € 150 | Budget for movies, hobbies, or other leisure activities. |
| Gifts | € 50 | Savings for birthdays, holidays, or special occasions. |
| Personal Care | € 150 | Allocated for health and beauty products or services like haircuts. |
| Savings | € 200 | Money set aside for future needs or emergencies. |
| **TOTAL** | **€ 1 200** | |
|-----------------|----------------------------|---------------------------------------------------------------------|
| Groceries | $ 300 | This covers your monthly food and household supplies. |
| Gas | $ 100 | Allocated for fuel and transportation costs. |
| Dining Out | $ 150 | Money set aside for eating out at restaurants or cafes. |
| Clothing | $ 100 | Funds for purchasing new clothes or accessories. |
| Entertainment | $ 150 | Budget for movies, hobbies, or other leisure activities. |
| Gifts | $ 50 | Savings for birthdays, holidays, or special occasions. |
| Personal Care | $ 150 | Allocated for health and beauty products or services like haircuts. |
| Savings | $ 200 | Money set aside for future needs or emergencies. |
| **TOTAL** | **$ 1,200** | |
@@ -191,8 +213,8 @@ necessary adjustments.
**How to Adjust Your Budget**
1. **Review your spending**: First, identify where you overspent. Look at your budget categories to see where adjustments are needed.
2. **Reallocate funds**: Move money from categories with surplus funds to cover the overspending. For example, if you budgeted € 100
for *Eating Out* but spent € 140, find another category with extra funds, like *Clothing* or *Entertainment,* and shift some
2. **Reallocate funds**: Move money from categories with surplus funds to cover the overspending. For example, if you budgeted $ 100
for *Eating Out* but spent $ 140, find another category with extra funds, like *Clothing* or *Entertainment,* and shift some
of that money to cover the difference.
3. **Stay calm and flexible**: Remember, the goal of budgeting is to manage your finances effectively, not to be perfect.
Flexibility is key. Adjusting your budget is a normal part of the process.
@@ -211,7 +233,7 @@ you understand that budgets are not rigid constraints but flexible tools that ca
### 5. Prepare for the unexpected
### 4. Prepare for the unexpected
There’s no such thing as a "normal" month when it comes to expenses. Your costs fluctuate throughout the year,
often unpredictably. Envelope budgeting helps you prepare for these irregular expenses by adding funds to
@@ -243,8 +265,8 @@ month to cover these rather than having to put up the larger amount when the bil
as a fixed expense to ensure you consistently save for these future costs.
**Example:** Let’s say your annual insurance costs are € 2 400. Instead of scrambling to find this amount when the bill
arrives, you can set aside € 200 each month. By the time the bill is due, you’ll have the total amount saved and ready,
**Example:** Let’s say your annual insurance costs are $ 2,400. Instead of scrambling to find this amount when the bill
arrives, you can set aside $ 200 each month. By the time the bill is due, you’ll have the total amount saved and ready,
avoiding the need to dip into savings or incur debt.
@@ -272,25 +294,25 @@ Read more about [managing credit cards](/docs/budgeting/credit-cards) with Actua
## A detailed example of how to do Zero-Sum budgeting
Let's say your total monthly income of January is € 1 200. You get your money on the 1st. Using Zero-Based Budgeting,
Let's say your total monthly income in January is $ 1,200. You get your money on the 1st. Using Zero-Based Budgeting,
you will allocate every unit of this income to different categories, ensuring that nothing is left unassigned. This is known as
the *Total Allocation*.
Here's an example of how you could split the € 1 200:
Here's an example of how you could split the $ 1,200:
| Categories | Income | Explanation |
|-----------------|-----------------|---------------------------------------------------------------------|
| Groceries | € 300 | This covers your monthly food and household supplies. |
| Gas | € 100 | Allocated for fuel and transportation costs. |
| Dining Out | € 150 | Money set aside for eating out at restaurants or cafes. |
| Clothing | € 100 | Funds for purchasing new clothes or accessories. |
| Entertainment | € 150 | Budget for movies, hobbies, or other leisure activities. |
| Gifts | € 50 | Savings for birthdays, holidays, or special occasions. |
| Personal Care | € 150 | Allocated for health and beauty products or services like haircuts. |
| Savings | € 200 | Money set aside for future needs or emergencies. |
| **TOTAL** | **€ 1 200** | |
| Categories | Income | Explanation |
|-----------------|-------------|---------------------------------------------------------------------|
| Groceries | $ 300 | This covers your monthly food and household supplies. |
| Gas | $ 100 | Allocated for fuel and transportation costs. |
| Dining Out | $ 150 | Money set aside for eating out at restaurants or cafes. |
| Clothing | $ 100 | Funds for purchasing new clothes or accessories. |
| Entertainment | $ 150 | Budget for movies, hobbies, or other leisure activities. |
| Gifts | $ 50 | Savings for birthdays, holidays, or special occasions. |
| Personal Care | $ 150 | Allocated for health and beauty products or services like haircuts. |
| Savings | $ 200 | Money set aside for future needs or emergencies. |
| **TOTAL** | **$ 1,200** | |
We now see that all € 1 200 are assigned to specific categories, ensuring that every unit of your income has a purpose.
We now see that all $ 1,200 are assigned to specific categories, ensuring that every unit of your income has a purpose.
### Week 1 budget tracking
@@ -299,13 +321,13 @@ Let's track the expenses in Week 1 and calculate the available amounts for Week
| Categories | Budget Week 1 | Spending Week 1 | Available for Week 2 |
|-----------------|------------------------|--------------------------|-----------------------------|
| Groceries | € 300 | € 123 | € 177 |
| Gas | € 100 | € 40 | € 60 |
| Dining Out | € 150 | € 10 | € 140 |
| Clothing | € 100 | € 34 | € 66 |
| Entertainment | € 150 | € 30 | € 120 |
| Gifts | € 50 | € 45 | € 5 |
| Personal Care | € 150 | € 75 | € 75 |
| Groceries | $ 300 | $ 123 | $ 177 |
| Gas | $ 100 | $ 40 | $ 60 |
| Dining Out | $ 150 | $ 10 | $ 140 |
| Clothing | $ 100 | $ 34 | $ 66 |
| Entertainment | $ 150 | $ 30 | $ 120 |
| Gifts | $ 50 | $ 45 | $ 5 |
| Personal Care | $ 150 | $ 75 | $ 75 |
In this table, the "Available in Week 2" column shows the remaining budget after subtracting the Week 1
spending from the initial budget. This helps you see how much you have left to spend in each category for
@@ -314,19 +336,19 @@ the next week.
### Week 2 budget tracking
In week 2 you, are invited to a housewarming party, and you want to bring a gift. In the *Available in Week 2* we
saw that you only had € 5 to spend. This does not go a long way - but you found a gift costing only € 10.
saw that you only had $ 5 to spend. This does not go a long way - but you found a gift costing only $ 10.
Let's track the expenses in Week 2 and calculate the available amounts for Week 3.
| Categories | Available Week 2 | Spending Week 2 | Available in Week 3 |
|-----------------|---------------------------|--------------------------|-----------------------------|
| Groceries | € 177 | € 98 | € 79 |
| Gas | € 60 | € 34 | € 26 |
| Dining Out | € 140 | € 30 | € 110 |
| Clothing | € 66 | € 34 | € 32 |
| Entertainment | € 120 | € 30 | € 90 |
| Gifts | € 5 | € 10 | € -5 |
| Personal Care | € 75 | € 40 | € 35 |
| Groceries | $ 177 | $ 98 | $ 79 |
| Gas | $ 60 | $ 34 | $ 26 |
| Dining Out | $ 140 | $ 30 | $ 110 |
| Clothing | $ 66 | $ 34 | $ 32 |
| Entertainment | $ 120 | $ 30 | $ 90 |
| Gifts | $ 5 | $ 10 | $ -5 |
| Personal Care | $ 75 | $ 40 | $ 35 |
Now you are in deficit in the *Gift* category.
@@ -341,10 +363,10 @@ here is the new available budget in Week 3:
| Categories | Available Week 2 | Spending Week 2 | Available in Week 3 |
|-----------------|---------------------------|--------------------------|-----------------------------|
| Dining Out | € 135 | € 30 | € 105 |
| Gifts | € 5 | € 10 | € 0 |
| Dining Out | $ 135 | $ 30 | $ 105 |
| Gifts | $ 5 | $ 10 | $ 0 |
This updated table reflects the reallocation of € 5 from the *Dining Out* category to cover the deficit in the *Gifts*
This updated table reflects the reallocation of $ 5 from the *Dining Out* category to cover the deficit in the *Gifts*
category, ensuring that all budgets remain positive in Week 3.
### Week 3 budget tracking
@@ -353,17 +375,17 @@ Let's track the expenses in Week 3 and calculate the available amounts for Week
| Categories | Available Week 3 | Spending Week 3 | Available in Week 4 |
|-----------------|---------------------------|--------------------------|-----------------------------|
| Groceries | € 79 | € 63 | € 16 |
| Gas | € 26 | € 12 | € 14 |
| Dining Out | € 105 | € 20 | € 85 |
| Clothing | € 32 | € 0 | € 32 |
| Entertainment | € 90 | € 35 | € 55 |
| Gifts | € 0 | € 0 | € 0 |
| Personal Care | € 35 | € 38 | € -3 |
| Groceries | $ 79 | $ 63 | $ 16 |
| Gas | $ 26 | $ 12 | $ 14 |
| Dining Out | $ 105 | $ 20 | $ 85 |
| Clothing | $ 32 | $ 0 | $ 32 |
| Entertainment | $ 90 | $ 35 | $ 55 |
| Gifts | $ 0 | $ 0 | $ 0 |
| Personal Care | $ 35 | $ 38 | $ -3 |
Note that Personal Care is in deficit, so you must reallocate funds from another category to cover this deficit.
Luckily, this week, we won € 37 at the lottery. We will allocate all of these € 37 wisely. The most important thing is to take
Luckily, this week, we won $ 37 at the lottery. We will allocate all of these $ 37 wisely. The most important thing is to take
care of the deficit. We now exercise both the *Flexibility* and the *Total Allocation* principles.
What do we do with the rest of the money we won? We can add them to the Savings category. We see that we are
@@ -373,14 +395,14 @@ We decide to split the rest of the money between Groceries and Savings.
| Categories | Available Week 3 | Spending Week 3 | Adjustments | Available in Week 4 |
|-----------------|---------------------------|--------------------------|-------------|-----------------------------|
| Groceries | € 79 | € 63 | € +24 | € 40 |
| Gas | € 26 | € 12 | | € 14 |
| Dining Out | € 105 | € 20 | | € 85 |
| Clothing | € 32 | € 0 | | € 32 |
| Entertainment | € 90 | € 35 | | € 55 |
| Gifts | € 0 | € 0 | | € 0 |
| Personal Care | € 35 | € 38 | € +3 | € 0 |
| Savings | € 200 | € 0 | € +10 | € 210 |
| Groceries | $ 79 | $ 63 | $ +24 | $ 40 |
| Gas | $ 26 | $ 12 | | $ 14 |
| Dining Out | $ 105 | $ 20 | | $ 85 |
| Clothing | $ 32 | $ 0 | | $ 32 |
| Entertainment | $ 90 | $ 35 | | $ 55 |
| Gifts | $ 0 | $ 0 | | $ 0 |
| Personal Care | $ 35 | $ 38 | $ +3 | $ 0 |
| Savings | $ 200 | $ 0 | $ +10 | $ 210 |
In this revised table, the deficit in Personal Care has been addressed, and the remaining lottery money has been allocated
to Groceries and Savings to better prepare for the coming week.
@@ -391,13 +413,13 @@ Let's track the expenses in Week 4 and calculate the available amounts for next
| Categories | Available Week 4 | Spending Week 4 | Available in Week 5 (February) |
|-----------------|---------------------------|--------------------------|-----------------------------|
| Groceries | € 40 | € 38 | € 2 |
| Gas | € 14 | € 0 | € 14 |
| Dining Out | € 85 | € 45 | € 40 |
| Clothing | € 32 | € 16 | € 16 |
| Entertainment | € 55 | € 17 | € 38 |
| Gifts | € 0 | € 0 | € 0 |
| Personal Care | € 0 | € 0 | € 0 |
| Groceries | $ 40 | $ 38 | $ 2 |
| Gas | $ 14 | $ 0 | $ 14 |
| Dining Out | $ 85 | $ 45 | $ 40 |
| Clothing | $ 32 | $ 16 | $ 16 |
| Entertainment | $ 55 | $ 17 | $ 38 |
| Gifts | $ 0 | $ 0 | $ 0 |
| Personal Care | $ 0 | $ 0 | $ 0 |
### Preparing for February: Learnings About Our Spending Habits in January
@@ -406,40 +428,10 @@ Let's track the expenses in Week 4 and calculate the available amounts for next
Therefore, we need to increase next month's budget for Groceries.
- We used more money than was allocated for gifts, so we should increase the budget for this category next month.
- We spent much less on Dining Out than we allocated, so we can reduce this budget for February.
- We will also increase the Gas budget by € 10 because if we had to fill gas in week 4, we would have faced a
- We will also increase the Gas budget by $ 10 because if we had to fill gas in week 4, we would have faced a
deficit and need to cover it from other categories.
The rest we put into our Savings category
| Categories | Available after week 4 | February Budget | To be allocated |
|-----------------|------------------------|-----------------|-----------------|
| Groceries | € 2 | € 350 | € 348 |
| Gas | € 14 | € 110 | € 96 |
| Dining Out | € 40 | € 150 | € 110 |
| Clothing | € 16 | € 100 | € 84 |
| Entertainment | € 38 | € 150 | € 112 |
| Gifts | € 0 | € 75 | € 75 |
| Personal Care | €  0 | € 150 | € 150 |
The sum of to be allocated is € 975. The monthly income for February is € 1200.
€ 1200 - € 975 = € 225 is added to the Savings category. This is € 25 more than last month.
A job well done of not overspending more than necessary!
This revised budget considers the adjustments based on our spending habits in January,
ensuring a more accurate and adequate budget for February
| Categories | Available at the start of February |
|-----------------|------------------------|
| Groceries | € 350 |
| Gas | € 110 |
| Dining Out | € 150 |
| Clothing | € 100 |
| Entertainment | € 150 |
| Gifts | € 75 |
| Personal Care | € 150 |
[^1]: Another name for this type of budgeting is Zero-Based Budgeting.
|-----------------|----------------------