a) General Ledger
This segment should account for the monetary accrual of
all the following segments. Once a month you transfer (or deposit) to the
general ledger segment enough money to carry the household for the next
month. Then from this account, you export to each of the following sub-account
enough money to carry the segment for the whole month. Since each segment
carries its own balance, you can analyse rather easily which sub-account
needs an increase or decrease, at any given time.
b) Groceries
This segment should show where you purchased, the amount
spent, and the balance left in the account. Once a month you import from
General Ledger a pre-determined amount that should cover the total grocery
orders for the month.
c) Heat
This segment should reflect the monthly amount spent,
and the balance left in the account. You should arrange with the gas, oil
or electric company to give you a "budget" plan for year-round automatic
monthly debits from your bank account. This facilitates budgeting.
d) Light
Same as heat above.
e) Home Insurance
Ask your insurance Agent if he/she will accept automatic
payment withdrawals out of your account. You can get the name of an Agent
from your Realtor.
f) Life Insurance
You should carry Term Life Insurance for the amount of
the mortgage to protect all parties. You can obtain this insurance from
an independent insurance broker or the lending institution. Before you
choose to buy from the lending institution, please refer to my "web-site",
there are cautions about this subject.
g) Car Insurance
Having car insurance payments come out of the household
account prevents you from scrambling once a year to come up with the appropriate
amount. Again, you should ask your Agent to withdraw monthly the payments
from your account.
h) Water
If you are on city water, the household account should
have a segment for payments.
i) Miscellaneous
This section is for unexpected debits within your household
(ie rugs cleaned, driveway sealed, cable, painting etc). It should amount
to at least 10% of all the other segments.
j) Property Taxes
Even though Municipalities only want their money three
or four times per year, we don't always have the money required to pay.
If you were to accumulate the money monthly, you don't have to go looking
when the bill arrives. Some municipalities now will deduct money monthly
from your account.
k) Mortgage Payment
This segment should show the principal and interest portion of the payment, as well as any accumulation you want to make to prepay your mortgage on the anniversary date. In other words, if your monthly payment is $1,000 but you would like to prepay an extra $1200 per year (which is $100 per month), you would transfer from the general ledger $1100 every month but show only $1000 going to the mortgage company. At the end of the year, you have accumulated that extra money so you write a separate cheque to your mortgagee.
If you buy or own a Condo, you can add a section for the
condo fees.
l) Other Instalment Debts
You can further breakdown this section to individual requirements,
such as child support, car loan, boat loan etc. Each loan should show the
payment, the amount of interest payable, the amount of principal paid and
the balance outstanding. When one loan is paid, you then increase the payment
on another and so on.
m) Savings Plan
This is probably the most important segment of all. You
should pick an amount you wish to salt away for a rainy day, and consistently
deposit it to this segment each month. This could be your holiday account,
Christmas shopping account, or retirement account. The amount deposited
to this account should be 5% of the total of all the above segments.
Once a month you deposit the total of all the segments
into the general ledger section, and then transfer from this area into
all the separate sections. The reason you want to do it by section is that
it will allow you to analyse to a greater degree of accuracy how much more
or less has to be set aside to make ends meet. When you buy your first
property, you should have enough saved up to make an initial deposit equivalent
to the total of all the segments. In other words, you will be prepaid by
one whole month for all your debts, that in itself can save you sleepless
nights.