Balancing a Budget

[kjlawless]

I think this topic has been brought up in various ways before, but I can’t seem to find the specific answer I’m looking for - or perhaps the solutions I was reading went a little over my head.

I’m setting up my family budget for the year and my husband and I are in a bit of a disagreement on how to set it up / manage it.

Say you have a Travel budget/category of $100 per month (using the Savings Budget sheet). You start with $0 before January, gain the first $100 in January, and continue adding to it per your budget in February, March, and April. On April 20th, you plan and pay for a $2000 vacation. It’s $800 more than you budgeted for the year, but you have money in a savings account you can use.

On April 22nd, your Travel budget balance is -$1600. (You had $400 in it at the beginning of the month, and spent $2000). In order to make sure your checking account doesn’t go into the negative, you transfer $1600 from savings to your checking account.

How do you categorize the positive $1600 transaction the following day?

A) As a transfer, leaving the balance of your Travel budget untouched and in the negative. The available balance will continue to increase by $100 every month, but ultimately will be -$800 by the end of December.

B) As Travel, so the budget is reset to $0 by the end of the month and starts fresh with $100 more per your budget in May. Yes, the extra vacation expense was unplanned, but it was paid for by savings and you can continue as usual with your planned $100/month budget through the end of the year.

C) Update the budget - either :
C1) for the month of April so that it’s $2000 instead of $100, or
C2) for every month so that the $2000 expense is spread out evenly throughout course of the year - meaning you’ll still see a big red number in your available balance column through the rest of the year, but at least it will be $0 by the end.

For many years now, I’ve gone with option B, thinking that’s what you should do to “balance a budget.” (I also categorize the negative transaction as a transfer, hidden from the budget). The only problem is that doing it this way means that particular expense is essentially hidden because it was zeroed out, and at the end of the month / year, the total expense figures are false.

My husband absolutely hates having false expense totals. I don’t blame him - I don’t love it, either because it takes a lot of effort to parse out the data to get actual expense totals. But seeing those large negative red numbers in the available column on the savings budget sheet indefinitely drives me crazy, especially when I know it won’t zero out by the end of the year. (I also don’t love the idea of transferring a balance from one budget line to another, because usually for us, each budget line has been fairly well planned for the year based on typical expense trends.)

So, my ultimate questions: Is there a best practice for managing budgets / categorizing transactions when situations like this arise? And, is there any way to make it so the expense totals read true while also allowing us to balance out the available totals on the savings budget sheet? I’m wondering if playing with tags or setting up categories in a different way would somehow make it possible…

PS: The travel scenario is just an example. It’s a real one for us, but I’ve also used option B to ‘balance’ out health expenses paid for from my FSA/HSA accounts, or large home expenses/purchases paid from a savings account, etc. Also, in the past, this issue wasn’t really a problem because our income was consistent and stable and we were able to save a lot. But this past year hasn’t been that way, and, well, 2026 has yet to be written so I want to plan as best as I can. Thanks for reading and considering!

[Rebecca.S]

Hi Kate,

I think the best practice is whatever will meet your needs the best. Off the top of my head, I think you have a couple of options.

I use Tags as “subcategories” to track the total we’ve spent on various items within a Category. Within the Travel category, I’d have transactions for flights, food, lodging, and souvenirs, and all would also have a Tag for Travel. I’d probably use option B to categorize the positive $1600 transaction and tag it as Travel as well. The Tags Report would then include it in the running total of every Travel transaction. You could also add a second Tag to the $1600 transaction to indicate that those funds were pulled from your savings. Ex: Travel,Savings Used (no comma). You can make the tags as specific or broad as you want–either lump every travel expense into the Travel tag, or use Tags to capture the variety of expenses incurred. Ex: Travel-Flights, Travel-Food, etc.

Alternatively, and simpler, would be to use the Adjust ± Modifies option in the Savings Budget sheet to add the positive $1600 transaction directly to the Travel category, then make a note in the Budget Journal to indicate where those funds were obtained.

Hope this helps,

Becca

[Clint.C]

Hi @kjlawless Kate,

Great real life budgeting question.

Here is how I approach this situation. I personally do your option C1. I track my savings account in a separate tab with line items for how the money is being allocated. My reasoning here for both actions is that the budget is simply a plan and plans change. The savings account represent real money and I need to know how that money has been allocated. Now, if I didn’t have the travel money in savings, then I would have to reduce the budget plan somewhere in order to accommodate the travel expense. The only other option is to wait until I have saved up the 2000 before I spend it.

Also, last year I tried to adjust expense budgets to match the actuals but gave up after 6 months. It was simply too much work for me. Plus, I find value in seeing how good my budget planning is per category and use that information to improve my budgeting the next year. This year I adjusted my estimates for inflation and also rounded them up to the nearest $50 or $100 per month to provide flexibility for adjustments during or end of year true-ups.

@Rebecca.S is spot on with using tags if you want to tract subcategories. I did that 2 years ago. Last year, I started using a technique for subcategories (in stead of tags) that @heather had posted about on a thread that I through was very cleaver and helpful. It is using Group as my “category” and “Category” as my “subcategory”. It worked out really good for me and I am using it again this year.

[PCB]

The way I would do it is to categorize the $1600 transfer from the savings account to the checking account as a transfer.

The initial $1600 transfer from the checking account to the savings account was also a transfer.

The travel expenses would be categorized under the travel (or the ones you use) category.

So the budgeted amount for that month should be $2100 (2000$ travel + 100$ recurrent savings) because that is when the expense occurs.

Since you have been using the savings budget, the funds would already be allocated and waiting to be used in the savings account. If you spend more than you allocated than your travel category would be in the red until you refund everything using the 100$ allocation or you allocate unused funds from another category.

Let me know if this makes sense. I might have been doing it wrong for a while though…

[casilverthorn.96]

I have no idea how best to do things like this. I use the savings budget, so I would have travel set aside, but when I go over, I do have savings for things that are unexpected, but I also don’t have a strict zero based budget that matches my bank account balances. That said, what I do is pay for the expenses in April, then on May 1, I adjust the savings amount to clean up any overages for April. I leave a note in the budget journal that says adjusting for April spending. I have chosen to do it the following month so that when I look at the month where the overage occurred, I can see it standing out. This leaves me at year end with a clear picture of my actual expenses with nothing hidden in travel. For the transfer, when I have to move money from one account to another, I tag the transaction or leave a note in the notes column, so I can look at all my transfers and see how I covered any of those overages during the year.

[kjlawless]

Thanks for your feedback, everyone!

I’ve come to the conclusion that I’ve been thinking too rigidly about the budget - leaning more on the idea that it’s a guardrail to protect against overspending (which it doesn’t technically do anyway since it’s still possible to overspend), rather than a projection of expenses over time. The reality of my sheets don’t necessarily match that thinking, so I’m letting that rigidity go.

Like @Clint.C and @PCB, I’m going to give Option C1 (AKA adjust the budget for the month in the Categories sheet) a try this year instead of Option B. And similar to what @Rebecca.S and @casilverthorn.96 mentioned, I’ll make a note whenever I need to adjust the budget for overspending.

Thanks for helping me work through this!

[pkrug539]

This is a great question and it goes right to how I use Savings Budget (and have modified it a bit)!

I use Savings Budget as envelope budgeting with rollover. Most of my categories are set to build a certain amount each month into those digital envelopes, and some instead are funded ad-hoc as we have extra income.

I am very much the same way you are: I hate seeing those overspent envelopes and they remind me that I have negative dollars to spend in those categories. But like you, sometimes an envelope isn’t going to build enough to cover a big expense by the time I need it, and I need to adjust the envelope.

There’s two ways you can adjust your envelopes. One is to adjust the savings in the envelope. This is like sticking unbudgeted cash into the envelope. That can be perfectly fine! I intentionally just up the savings for certain envelopes where I want to track how much over budget we went for the year, even if that spending was authorized/ratified. I reset our Savings Budget at the first of the year to track things like annual income and the like, but because I have things like our utilities envelope designed to build during the warmer months and draw down over the winter, I couldn’t just zero out all the envelopes on January 1. I wrote down all the envelopes I need to preserve their values for carryover, restarted our budget period, and then upped the savings for all the envelopes that needed to carry over. I didn’t want to raise the budget for those envelopes (because that money was already budgeted last year and carrying over!)

Other times, I want to raise the budget because I am specifically planning for and allocating money for an expense, but only for say a certain month. Let’s say I’m putting $100 a month into travel with the intent that builds to a pot I can use for an annual road trip or something, but I know I’m taking a big trip in March and I want to put another $1500 towards that. I know I have the money in an account somewhere to cover it.

That’s when I want to just go into the Categories sheet and raise the budget for the month with the extra expenses. Think of Categories as just the amount of money you are budgeting to put into each envelope every month. You can set a single amount that carries over month to month for predictable expenses like your mortgage, or you can set different amounts because you know certain months will have more or less.

You will usually need to go right to the next month and pop it back down to your regular monthly budget because it’ll autopopulate over to the rest of the year. I’ll categorize moving the money from savings to checking there as a transfer and exclude it from reports, because I haven’t made or lost any money really, I’m just moving it around. Tiller will calculate those available budgets based on my expenses vs. how much I have budgeted towards it since the start of my budget period, not based on what accounts my money is in, so I can basically ignore those.

From there, I can just categorize my transactions normally into the categories I want: hotels, supplies for the trip, etc. can all get categorized into Travel.

Personally, I also use tags to record things for my trips, because I often might have expenses that I want to actually pull from other budgets, but are for the purpose of a trip, and I want to track how much I spent across those different categories rather than just classifying all of it as “travel” expenses, and sometimes things are purely just for travel. I find this super helpful for me in tracking my expenses and creating a detailed report later of exactly what our trip cost and where we spent it - groceries, clothing, gas, whatever.

That all helps me keep our budget balanced, and have a clear picture of where we’re spending more but it’s ok because, say, we got some extra unbudgeted income (overtime hours, extra shifts, sold some side gig work or old baby stuff, Substack subscriptions, whatever).

Does that all make sense?

[kjlawless]

It makes perfect sense. Thank you for your thoughtful response!