Tracking transactions

When you read through the following method of tracking household transactions, remember that you are the boss of your house (possibly jointly with a significant other). You change, adapt, throw out any part of this that does not fit your life or how you think.

The best way to track transactions is not with a computer program or little check registers, but with paper in a binder. The computer program requires that you often enter a transaction twice, once on paper and once on the computer. Computers are also incredibly flaky machines and cannot be trusted with something this important. Also, for security reasons, it is best to keep financial information off your computer. It is easy and simple to track transactions in a binder with page-size transaction registers.

 

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Active transactions

You need a binder, binder dividers, and three-hole sheet protectors. You can set the binder up like this, adapted to your household needs.

 

Put your monthly budget behind the "household checking" binder divider and the quarterly budget, if you have one, behind the "quarterly checking" binder divider. Bills To Be Paid, Medical Receipts, and Next Deposit need sheet protectors behind them. Medical Receipts is needed if you have access to a tax-favored health plan, through your employer, that eliminates income and payroll taxes on money you pay for medical expenses. Next Deposit gives you a place to stash checks you will be depositing so you don't space out and lose them.

You then need to put page-sized transaction registers in the sections for the four bank accounts (or the number of bank accounts you have) and for the credit card account. These transaction registers are much easier to use and store than the small check-sized check registers that come with your checks.

This plan advocates having several bank accounts instead of one. This requires that you find a bank offering accounts with no or manageable minimums to avoid bank charges. Although it seems more complicated to have multiple bank accounts, separate accounts for different purposes can make money easier to track.

You can print, adapt, or create the following transaction registers:

Household checking transaction register

version to print, version to edit. (The second version is in rich text format, which should open up in any wordprocessor.)

As you finish each page in this register, add up the medical expenses on the page and write the total in the space designated on top. You can use this information for your tax form and to keep up with this unruly budget item.

The "subm" column is for medical expenses if you use a tax-favored health plan. Check it off when you have submitted the expense. This way you won't miss any. Delete this column if you don't use such an account.

When you start a new month, write your monthly budget amount
for smaller medical expenses and food above "balance." Then subtract these expenses as you incur them and put what's left in the "balance" column. If you have school children, you may need to call the "medical" column "medical & small school expenses."

The "other" column is for expenses listed on the budget, such as housing and utilities. "cl?" is for checking off when you go through your bank statement.

Quarterly checking transaction register

version to print, version to edit.

This is for homeowners who need to pay quarterly bills. You can use one transaction register for several months. Your quarterly budget should show the bills that are paid every quarter. In addition to water and trash removal, you can add a large purchase of nonperishable food and consumable items, cash on hand for children's allowances, and church contributions. Try to make all your expenses fit the monthly or quarterly cycle.

Every month you can manually or automatically deposit one third of the next set of quarterly bills. It will then be ready when you need it. All this is designed to make bills something you are in charge of, instead of scary pieces of paper that hit you when you don't expect them.

Special expenses checking transaction register

version to print, version to edit.

This is for expenses that are neither monthly nor quarterly, such as home remodeling projects and large medical expenses. It helps to have a separate account to ensure that you always have the money for basic household bills separate and set aside. But it might work out fine for some people to combine this with the quarterly expenses account, especially if they have few large and unusual expenditure they are saving for.

Upcoming Expenses form

version to print, version to edit.

This form goes in the Special Expenses section. It can help you see the big picture of what money you have. This is for money beyond what is in the monthly or quarterly budgets.

Savings transaction register

version to print, version to edit.

Life happens. Sometimes a large expense arises, usually home repair, car repair, or medical. If you have a tax-favored health plan through your job, you can submit a large medical expense right away, then pay it when you receive it in your paycheck. For large medical expenses that can't be handled this way and for repairs, several hundred to a thousand dollars set aside in this account can help you when you need it. The trick, of course, is getting this money to begin with. The only way to do that is by carrying through on the whole budget idea. This is for urgent needs, not for large-scale emergencies such as job loss and long-term illness. Savings for those should be deeply stashed in a forgotton federally-insured bank account or CDs. Can't put all this money away right away? Do what you can when you can.

Credit card transaction register

version to print, version to edit.

Many people do not keep track of what they spend with their credit card. This is a really really bad idea, and if you want to live green and be on top of your financial situation, you need to be a good boy or girl and keep track of these expenses. One good way to do this is to use your credit card for the budget item "household allowance," which is a vague category so you need to be careful it is not abused. This is for gasoline, oil changes, haircuts, and other basic but hard to categorize items. See if you can get your billing cycle to start at the beginning of each month, since this is far easier to understand. Look back at your previous expenses to figure out what amount to set aside for this budget item.

Write the amount that you have decided on for your household allowance under "balance," which is below "household allowance." After you write in the expenses to come out of the household allowance, figure out the balance, and make sure you keep enough in there for the month, keeping a close eye on when you'll need more gas for your car(s). Credit card transactions that are not part of the household allowance, such as home remodeling projects, go under "other." You can keep a running total of these on the bottom of the page. Just keeping track of these charges will help you be aware of what you are spending.

Check your credit card statement carefully each month, and check off all the transactions on it under "cl?" (cleared). You might want to also check them off as you go on the credit card statement itself, since they can be hard to follow with the statement's small print. This amount is paid with the amount in the next month's budget for "household allowance."

Dangerous as credit cards can be, they also have advantages. You can carry out transactions over the phone or internet without the risks associated with debit card withdrawals. With a credit card, you review the statement for accuracy before paying it, and are protected by law (somewhat) if something is wrong. Debit cards are, in general, a bad idea, and automatic direct withdrawals should only be used with a small handful of monthly bills from companies your research shows are reliable, such as a mortgage company or car insurance firm. Errors with debit cards and automatic withdrawals are much harder to dispute because the money is already gone. Such errors can also lead to your checks to other companies bouncing.

A credit card might also offer a cash reward program, a small percentage returned to you every year or so. The key to getting the advantages but avoiding the dangers of credit cards is always entering amounts on a transaction register and subtracting them from a balance, as though the money is already gone. There is no need for multiple credit cards.

 

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How to use the binder

Set a specific time to do boring bills stuff, perhaps once a week. Keep receipts in a certain place, such as in a magnetic clip on the refrigerator, or in a binder section. Go through the binder from the beginning, entering all missing transactions and finding out balances. After updating the accounts, pay all the bills that can be paid right away. If you are not paying a bill yet, write a post-it note on it saying why so you don't keep relooking at the bill. It is good to do all this next to your file cabinet so you can put paper away immediately as you finish with it. Keep careful track of any medical expenses you have incurred, with something on paper in the Bills to be Paid section, because medical providers and insurance companies are often, shall we say, either disorganized or dishonest. Check those bills carefully, or you could inadvertently spend far more than you need to.

 

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Inactive transactions

Bank statements, transaction registers that have been checked against bank statements, the bills themselves—all this needs to go somewhere when you are done with it and no longer need it in the binder. You need to use a file cabinet with hanging folders. Don't let paper sit around. You can use these categories for your files, or come up with your own:

Bank

Account receipts / current year

Bank

Account receipts / previous year

Bank

Account statements / current year

Bank

Account statements / previous year

Bank

Account statements / two years previous

Bank

Transaction register / current year

Bank

Transaction register / previous year

Bank

Transaction register / two years previous

Bank

Transaction register / blank

Bank

Current accounts / information

Books / receipts

Car

Gasoline expenses / current year

Car

Gasoline expenses / previous year

Car

Government fees and records

Car

Insurance policy

Car

Repairs and maintenance (one of these files for each car)

Clothing / receipts

Credit card

Current accounts / information

Credit card

Statements / current year

Credit card

Statements / previous year

Credit card

Statements / two years previous

Education

(a file on each child, if appropriate)

Education

Receipts / current year

Education

Receipts / previous year

Gifts

Receipts / current year

Gifts

Receipts / previous year

Home repair and maintenance

Permanent improvements

Home repair and maintenance

Short term / current year

Home repair and maintenance

Short term / previous year

Housing

Payments / current year

Housing

Payments / previous year

(all earlier records regarding payments on a mortgage need to be permanently kept in another storage place.)

Life insurance

Policy / bills / receipts

Medical

Insurance policy

Medical

Insurance correspondence / current year

Medical

Insurance correspondence / previous year

Medical

Insurance correspondence / two years previous

Medical

Receipts / current year

Medical

Receipts / previous year

Medical

Receipts / two years previous

Medical

Records / (each family member's name)

Music / receipts

Outings

Receipts / current year (to check against credit card bill)

Outings

Receipts / previous year

Retirement

Social security information

Retirement

(file for each plan)

Utilities

Bills / current year

Utilities

Bills / previous year

You will notice that the files are grouped by general category, making them easier to find. When you set up or modify a file cabinet, you need to think through how to make things easy to find, not just how to get them out of the way.

At the beginning of each year, you need to move current year documents to previous year, etc. This filing arrangement takes into account how long you should need most records. File categories that can be more complicated in the long term, such as medical and credit card statements, may require longer storage than others. But how long to keep them is up to you, as long as you don't accidentally hold onto paper you don't need.

 

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Tax-related documents

People get excited about tax preparation software, and get desperate enough to go to tax preparation services. What they don't realize is they are not saving themselves any agony. The form itself is the easy part. It's getting the documents together that's hard. And you have to do that no matter what. It doesn't make any difference which method you use. In fact, when you start tracking these documents through the year better, you'll find that filling out the forms by hand works just fine, although filing directly online is better for the environment.

The best way to keep track of tax-related income and expenses is with a "presentation book," sold at Staples, though something without petroleum products would be greener. This portfolio has a plastic cover and several clear plastic pockets inside that 8 1/2" x 11" pages fit into. You choose the number of pockets that best fits your needs. Paper with titles can slide into the spine and cover so you can easily identify the folder. Then you can label the clear pockets with post-it notes placed in backwards. They need to be labeled:

Tax forms

W2s

Pay records ( one pocket for each person)

Other income

Medical expenses

Taxes paid

Gifts to charity

You need to add the categories that fit your household. Just look back at the previous year's return, add anything new that will be on the return this year, and put the categories in the order that they are in on the tax forms.

Throughout the year, consistently put your records in this presentation book. When you do your tax forms (February 1, when all the W2s are in, right?), all the information is already there. If you do your returns on paper, you can print them off the IRS and state web sites early, perhaps the November before, and start filling out what you can. The IRS site, however, has the forms in PDF form, but with inadequate margins that don't work on some printers. You may need to shrink them via your "to print" screen to get them to work. Even if your act is not real together in doing everything early, you will benefit enormously from having all the documents already in one place, in fact, more so.

Keeping these records in hanging files doesn't work well. That many file folders per year are too bulky to store, and the files are harder to carry around and work with when doing your return than the presentation book.

If your financial situation seems too complicated to fit this type of recordkeeping, ask yourself whether you have gotten in over your head by making your finances too complicated. Odds are, if you need accountants and multiple software programs to manage your money, you are losing money because you are not really keeping track of what's going on.

The experts say to keep your tax records for three years, since that is what is required by the IRS. However, the IRS can require records for any year if they suspect you of tax fraud. Now, of course, they are not supposed to suspect innocent people of tax fraud. So how long you keep your records depends on how much you trust the federal government to know what it's doing.

I have never thrown out a tax document.