How do I categorise transfers of money between accounts?

Most of us bank using more than one bank account and it’s common to move money from one account to another to manage personal and household finances. This results in multiple transactions with money leaving one account and coming into another account and then sometimes leaving the second account to pay an expense.

If these transactions are not categorised correctly it can result in your Income and/or your Spending being double counted.

The most important thing about categorising these types of transactions is to be clear about which ones you want to consider as Income and/or Spending and which ones are simply moving money between accounts. Those that are moving money between accounts and are not Income or Spending should be excluded from things like your Budget and your Spending reports.

As complicated as this may seem, it’s actually very easy to do.

The key is to make sure that transactions that are only moving money between your accounts and are not income or expenses are categorised using one of the MoneyBrilliant Transfer categories (these include Transfers, Credit Card Payments, Savings and Securities Trades).

The transactions that are Income (that is money you receive from someone else) or Expenses (that is money you pay to someone else for a product or a service) should be categorised using an appropriate Income or Expense category.

MoneyBrilliant will automatically exclude the transactions you categorise using a Transfer category (that is Transfers, Credit Card Payments, Savings and Securities Trades) from your Budget and Spending Reports.

Lets look at some examples:

1. Moving money between your accounts (the simplest scenario)

When you move money from one of your accounts to another, you should categorise both the transaction out of the first account (the debit or withdrawal transaction) and the transaction coming into the other account (the credit or deposit transaction) as Transfers.

Categorising both these transactions as Transfers will exclude the amounts from your Budget or Spending Reports.

You can use this approach for basic transfers between accounts for things like putting aside money to pay bills or moving money to a savings account.

 

2. Paying your credit card

The approach we recommend for categorising the credit card payment transactions is the same as Example 1.

When you move money from your main transaction account to your credit card you should categorise both the transaction out of your transaction account (the debit or withdrawal transaction) and the transaction coming into your credit card account (the credit or deposit transaction) as Transfers.

Categorising both these transactions as Transfers will exclude the amounts from your Budget or Spending Reports.

The actual purchase transactions on your credit card should be categorised using appropriate Spending categories.

 

3. Paying your loan

There are several different ways that loan payment transactions can be categorised. We recommend the following approach which works well for both principal and interest loans and interest only loans and results in the total loan payment you make being classified as Spending.

Assuming you are transferring money from a transaction account, savings account or offset account to a loan account you should do the following:

  • Categorise the first transaction that withdraws money from the transaction, savings or offset account as a Loan Repayment. This makes sure the total amount of this transaction will show on your Budget and Spending Reports
  • Categorise the related transaction that deposits money into you loan account as a Transfer. This makes sure this transaction is excluded from your Budget and Spending Reports (otherwise it would simply net off against the first transaction)
  • Categorise any other transactions in your Loan account for things like Interest and Fees and Charges as Transfers. This will make sure that they are also excluded from your Budget and Spending Reports. We know this doesnt seem intuitive, but we dont want to double count these expenses given we have already included the total Loan Repayment as part of your spending in step 1

 

This approach will ensure that your Budget and Spending Reports show the total amount you have paid off your loan and help you keep track of money.

If you have any questions about how to categorise Transfers don’t hesitate to contact us at connect@moneybrilliant.com.au