Ask the Expert Guide to Microsoft Money 2001

ASK THeEXPeRT G U I D E

T O

MICROSOFT MONEY 2001 Electronic Edition

ASK THeEXPeRT G U I D E

T O

MICROSOFT MONEY 2001 Electronic Edition

Stephen L. Nelson, CPA, MBA David B. Maguiness, MBA

Ask the Expert Guide to Microsoft® Money 2001: Expert Help for Using Microsoft Money at Home, for Investments, or in a Small Business Copyright © 2000 Stephen L. Nelson and David B. Maguiness All rights reserved. No part of this book may be reproduced in any form or by any method or any means without the prior written permission of the publisher. Published by Redmond Technology Press 8581 154th Avenue NE Redmond, WA 98052 www.redtechpress.com Library of Congress Catalog Card No: applied for ISBN 1-931150-14-1 Printed and bound in the United States of America. 987654321 Distributed by Independent Publishers Group 814 N. Franklin St. Chicago, IL 60610 www.ipgbook.com Product and company names mentioned herein may be the trademarks of their respective owners. In the preparation of this book, both the author and the publisher have made every effort to provide current, correct, and comprehensible information. Nevertheless, inadvertent errors can occur and software and the principles and regulations concerning business often change. Furthermore, the application and impact of principles, rules, and laws can vary widely from case to case because of the unique facts involved. For these reasons, the author and publisher specifically disclaim any liability or loss that is incurred as a consequence of the use and application, directly or indirectly, of any information presented in this book. If legal or other expert assistance is needed, the services of a professional should be sought.

Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the relevant copyright, designs and patents acts, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publisher. eBooks Corporation

Chapters at a Glance Introduction

xvii

Chapter 1

Getting Started

Chapter 2

Keeping a Checkbook

17

Chapter 3

Balancing Y our Bank Accounts Your

39

Chapter 4

Using Money’ Money’ss Reports and Charts

49

Chapter 5

Managing the Money Data Files

69

Chapter 6

Customizing Money

83

Chapter 7

Banking Online

111

Chapter 8

Using a Credit Card

119

Chapter 9

Managing Y our Debts Your

133

1

v

Chapter 10

Investing in Mutual Funds

155

Chapter 11

Investing in Stocks, Bonds, and Other Marketable Securities

185

Chapter 12

Investing in Real Estate

201

Chapter 13

Budgeting and Financial Planning

221

Chapter 14

Tax Planning and Preparation

229

Chapter 15

Accounting for a Business

233

Index

243

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Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

Contents Introduction

xvii

Why Ask the Expert Guide to Microsoft Money 2001? .................... xvii What is in this book? .................................................................. xviii How do I use this book? ............................................................. xviii How do I get started? ................................................................. xviii

Chapter 1

Getting Started

1

How well do I need to know Windows? .......................................... 2 How do I install the Money software? ............................................. 2 What if the wizard doesn’t start automatically? ............................... 3 How do I start the Money program? ...............................................4 How do I run the Money Setup Assistant? ..................................... 5 How do I sign up for online banking? ........................................... 10 How do I sign up for online investing? .......................................... 10 Do I need to upgrade the Money software each year? ................... 11 What if I want to switch from Money to Quicken or vice versa? .... 11 How should I begin using Money? ................................................ 12 How do I get more help if my questions aren’t answered here? ..... 12 How do I use Money Express? ...................................................... 15 vii

Chapter 2

Keeping a Checkbook

17

How do I record checks? ............................................................... 18 How do I record ATM withdrawals? ............................................. 22 How do I record a check that pays multiple categories? ................ 22 How do I record deposits? ............................................................. 23 How do I void a check? ................................................................. 26 How do I void a deposit? ............................................................... 27 How do I handle debit card transactions? ...................................... 28 How do I record automatic withdrawals and deposits? .................. 30 How do I record an account transfer? ............................................ 31 How do I print a check? ................................................................ 33

Chapter 3

Balancing Y our Bank Accounts Your

39

How does account reconciliation work? ......................................... 39 How do I reconcile a bank account? .............................................. 40 What should I do when my account won’t balance? ...................... 45 How do I record interest earned on an account? ............................ 46 How do I record bank service fees? ................................................ 46 Will reconciliation correct and detect all errors? ............................ 47

Chapter 4

Using Money’ Money’ss Reports and Charts

49

How do I start using Money’s reports? .......................................... 50 What kinds of reports does Money prepare? ................................. 50 How do I produce a report or chart?.............................................. 54 How do I create a chart or graph? ................................................. 56 How do I print a report or chart? .................................................. 58 viii

Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

How long should I retain Money forms, reports, and charts? ........ 59 How do I customize a Money report? ........................................... 60 Using the Account Tab ............................................................ 60 Using the Amount Tab ............................................................ 61 Using the Category Tab ........................................................... 62 Using the Chart Tab ................................................................ 63 Using the Date Tab .................................................................. 63 Using the Details Tab .............................................................. 64 Using the Fonts Tab ................................................................. 65 Using the Rows & Columns Tab ............................................. 65 Using the Payee Tab ................................................................ 66 Using the Text Tab................................................................... 67 How do I undo my customization? ................................................ 68

Chapter 5

Managing the Money Data Files

69

Where does Money store my financial records?............................. 70 How do I password-protect my Money data file? .......................... 71 How do I back up the Money data file?......................................... 73 How often should I back up? ......................................................... 74 How do I restore the Money data file? .......................................... 74 How do I create a new Money data file?........................................ 75 Why would I create a second Money data file? ............................. 76 How do I switch between Money data files? ................................. 76 How do I convert a Quicken file to the Money data file format? .... 78

Contents

ix

How do I import a Quicken or .qif file? ........................................ 79 How do I export to the .qif data format? ....................................... 80 How do I delete the Money data file?............................................ 81

Chapter 6

Customizing Money

83

How do I change the Money window? .......................................... 84 Setting Display Options .......................................................... 84 Setting Color Schemes Options .............................................. 85 Setting Calendar Options ........................................................ 85 Setting Sounds Options ........................................................... 85 Setting Advisor FYI Options .................................................. 86 How can I control the way Money backs up its data files? ............ 86 Setting the Hard Disk Backup Options .................................. 87 Setting the Floppy Backup Options ........................................ 88 How do I control the way Money handles any online services? ..... 88 How do I control how Money’s Internet connection works? ......... 90 Setting Internet Connection Options ...................................... 90 Setting Browser Options ......................................................... 91 How do I change the way Money handles data entry and data editing? .......................................................................................... 91 Setting Entry Options ............................................................. 92 Setting Confirmation Options................................................. 93 How do I change Money’s investment recordkeeping procedures? .................................................................................... 94 Setting the Investment Options .............................................. 95 Setting the Portfolio Manager Options ................................... 95 Setting the Investment Categories Options............................. 96 x

Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

Setting the Employee Stock Options ...................................... 97 Setting the Capital Gain Options ............................................ 97 How do I change the Money Planner’s assumptions about extraordinary financial events? ....................................................... 98 How do I customize the list of currencies that Money uses? ......... 99 How do I change the way Money handles recurring bills and deposits? ...................................................................................... 101 How do I make changes to the categories list? ............................ 102 Modifying the Category List ................................................. 102 Setting the Standard Categories Options .............................. 106 How do I customize the way Money prints checks? .................... 106 Setting the Printing Checks Options .................................... 107 How do I change the way reports print? ...................................... 108 How do I change the way a printer prints checks? ...................... 109

Chapter 7

Banking Online

111

What are online financial services? .............................................. 112 How do I find a bank? ................................................................. 112 How do I pick a bank? ................................................................. 113 How do I set up an account for online banking? ......................... 113 How do I pay a bill using online bill payment? ............................ 115 How do I transfer between online accounts? ............................... 116 How do I download an online statement? ................................... 116 How do I reconcile an online account? ........................................ 117

Contents

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Chapter 8

Using a Credit Card

119

Do I need to track credit card spending? ..................................... 120 How do I set up a credit card account? ........................................ 120 How do I record a credit card charge? ......................................... 121 How do I record a credit card credit? ........................................... 124 How do I reconcile a credit card account? ................................... 126 How do I record credit card service charges? ............................... 129 How do I record credit card interest charges? .............................. 130 How do I pay off a credit card balance? ....................................... 130 How do I download an online credit card statement? .................. 131 How do I contest a credit card charge? ........................................ 132

Chapter 9

Managing Y our Debts Your

133

How do I set up an account for tracking a debt? ......................... 134 Setting Up a Simple Liability Account .................................. 134 Setting Up an Amortizing Liability Account ........................ 136 How do I handle an adjustable rate loan? .................................... 143 What if I make a mistake in describing a loan? ........................... 146 How do I record an amortizing loan payment? ........................... 147 How do I record a simple liability payment? ............................... 148 How do I adjust the principal and interest breakdown if Money’s calculation is incorrect? ................................................. 148 Can I use Money’s loan interest summary on my tax return? ...... 149 How do I handle property tax, escrow collections, and disbursements? ............................................................................. 150

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How do I prepare a loan amortization schedule? ......................... 150 When does it make sense to refinance a loan? ............................. 151 When does it make sense to pay off a mortgage early? ................ 152

Chapter 10

Investing in Mutual Funds

155

When should I keep financial records for mutual funds? ............. 156 Tracking Investment Income ................................................. 156 Tracking Capital Gains .......................................................... 157 Measuring Investment Performance ...................................... 158 How do I set up a mutual fund account? ..................................... 158 How do I record additional purchases? ........................................ 165 How do I record income or capital gains? .................................... 168 How do I record income, dividend, or capital gain amounts reinvested? ................................................................................... 170 How do I update mutual fund share price information? .............. 173 How do I record the sale of mutual fund shares? ......................... 175 When do I use the other investment activities? ........................... 178 Using Other Income .............................................................. 178 Using Other Expense ............................................................ 178 Using Return of Capital ........................................................ 178 Using Add Shares and Remove Shares .................................. 179 Using Sale Short and Cover Short......................................... 179 Using Transfer In and Transfer Out ...................................... 179 Using Transfer In Short and Transfer Out Short ................... 180 How do I get good investment account summary information? ..... 180 Can Money help me pick a mutual fund? .................................... 182

Contents

xiii

Chapter 11

Investing in Stocks, Bonds, and Other Marketable Securities

185

How do I set up a brokerage account? ......................................... 186 How do I record a bond purchase? .............................................. 187 How do I record a certificate of deposit? ..................................... 187 How do I record bond interest? ................................................... 188 How do I deal with zero coupon bonds? ..................................... 188 How do I record interest on a CD? ............................................. 189 How do I record a bond sale? ...................................................... 190 How do I record a stock split? ..................................................... 191 How do I record a stock dividend? .............................................. 192 How do I record brokerage account fees? .................................... 192 How do I work with the associated cash account and investment account? ..................................................................... 194 How do I handle a merger? ......................................................... 194 How do I record a liquidating dividend? ..................................... 195 How do I handle a short sale? ...................................................... 195 How do I record margin interest? ................................................ 195 How do I handle derivatives using Money? ................................. 195 Selling Puts and Calls ............................................................ 196 Exercising Puts and Calls ...................................................... 196 How do I handle precious metals and commodities? ................... 197 How do I set up employee stock option investments? ................. 197 How do I handle bond premiums? .............................................. 197

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Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

How do I handle bond discounts? ............................................... 198 Is there any way to make bond investment record keeping easier? .......................................................................................... 199 How do I view my stock and bond holdings? .............................. 200 How do I invest online with Money? .......................................... 200

Chapter 12

Investing in Real Estate

201

How do I keep records for REIT investments? ........................... 202 How do I keep records for direct property investments? ............. 202 How do I set up real estate categories? ........................................ 203 How do I set up real estate classifications? .................................. 205 How do I set up an asset account for a property I own? .............. 208 How do I perform record keeping for rental income and expense amounts? ........................................................................ 211 How do I prepare income or cash flow statements for real estate investments?....................................................................... 212 How do I keep track of outstanding rent payments? ................... 215 How do I track property improvements and repairs? ................... 216 Recording Capital Improvements .......................................... 217 Recording Capital Improvements .......................................... 218 How do I track depreciation on a real estate investment? ............ 218

Chapter 13

Budgeting and Financial Planning

221

How do I create a budget? ........................................................... 221 How do I create a personal financial plan?................................... 223 How do I plan for retirement? ..................................................... 224 How do I plan for a child’s college expenses? .............................. 227

Contents

xv

Chapter 14

Tax Planning and Preparation

229

How do I track my tax data? ........................................................ 229 How do I summarize my tax data? .............................................. 230 How do I estimate my income taxes?........................................... 231 How do I export tax information? ............................................... 231 How do I use a tax preparation program? .................................... 232

Chapter 15

Accounting for a Business

233

What should I look for in a small business accounting program? ...................................................................................... 234 Tracking Income and Expenses ............................................. 234 Generating Business Forms ......................................................... 235 Detailed Record Keeping for Other Assets and Liabilities .......... 235 How do I track income? .............................................................. 236 How do I track expenses? ............................................................ 237 How do I measure profits? ........................................................... 237 How do I measure cash flow? ...................................................... 239 How do I do payroll? ................................................................... 239 How do I prepare a balance sheet? ............................................... 240 How do I prepare business income tax returns? ........................... 241 What should I do if I outgrow the Money program? .................. 242

Index

243

INTRODUCTION

Questions Answered in This Introduction • Why Ask the Expert Guide to Microsoft Money 2001? • What is in this book? • How do I use this book? • How do I get started? Welcome to Ask the Expert Guide to Microsoft Money 2001, a new approach to learning computer software. In the following sections, we’ll explain how this book helps you quickly learn the Microsoft Money features that are important to you.

Why Ask the Expert Guide to Microsoft Money 2001? Ask the Expert is a unique Money learning resource. The beginning of each chapter lists common questions you might have about how to accomplish a task using the Money program. You can quickly find the answers you need by scanning the chapter title pages to find your question and then flipping through the specific chapter to locate the corresponding answer. This book includes all the procedures you’ll need to use Money effectively. But Ask the Expert goes beyond procedures and provides you with sound advice and practical suggestions from authors with many years of financial and Money experience. In this manner, you can confidently use the program knowing you’re getting the most from Money.

xvii

What is in this book? Ask the Expert Guide to Microsoft Money 2001 contains fifteen chapters. These chapters are organized into the following groups: Chapters 1 through 3 help you understand the basics of Money. You’ll learn how to get started with Money and manage and reconcile your checking account. Chapters 4 through 6 explain the nuts and bolts of Money. You’ll understand how to create reports and charts, manage Money’s data files, and how to customize Money itself. Chapters 7 through 9 describe how to use Money to perform online banking, manage your credit cards, and control your debts. Chapters 10 through 12 enable you to track your investments in mutual funds, marketable securities, and real estate. Chapters 13 through 15 show you how to use Money for financial planning and reporting. You’ll learn how to create budgets, summarize data for preparing your tax return, and use Money as a small business accounting system.

How do I use this book? Ask the Expert is organized so that you can progress from basic tasks to more advanced uses of Money. If you are new to Money, Chapters 1 through 3 will get you quickly up to speed with the program. After you become familiar with Money, choose the chapters that correspond to your interests. If you are an experienced Money user, you can go directly to the chapters that pertain to your financial situation. In both cases, make sure you understand how to manage Money data files to protect your valuable financial data.

How do I get started? All you need to get started with Money is the program CD-ROM. Have your checkbook nearby, as well as any unpaid bills. Then turn to Chapter 1 and get ready to learn the basics of Money. Above all, have fun. Stephen L. Nelson David B. Maguiness

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Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

Chapter 1

GETTING ST AR TED STAR ARTED

Questions Answered in This Chapter • How well do I need to know Windows? • How do I install the Money software? • What if the wizard doesn’t start automatically? • How do I start the Money program? • How do I run the Money Setup Assistant? • How do I sign up for online banking? • How do I sign up for online investing? • Do I need to upgrade the Money software each year? • What if I want to switch from Money to Quicken or vice versa? • How should I begin using Money? • How do I get more help if my questions aren’t answered here? • How do I use Money Express? Using Microsoft Money 2001 isn’t complicated. But you may have several questions as you begin. This chapter quickly answers many common questions, and prepares you for day-to-day use of Money. None of the work you need to do to get started will take much time. In fact, you can probably complete all preparatory work in less than half an hour.

1

How well do I need to know Windows? You certainly don’t need to be an expert with Microsoft Windows to use Money. You do, however, need to know the basics, such as starting Windows’ programs and working with the windows and dialog boxes that are displayed. If you don’t already possess this knowledge, don’t worry. You can easily acquire it from a variety of sources. Any introductory book about Windows—and this includes books on Windows 95, Windows 98, Windows 98 Second Edition, or Windows Millennium—gives you the basic knowledge you need to work with a simple program like Money.

How do I install the Money software? Installing the Money software is easy. All you need to do is insert the Money CDROM—this is the CD that comes in the Money box—in your CD-ROM drive. Then follow the on-screen instructions. After you insert the CD, Windows looks at its contents to find the Installation Wizard. The wizard copies the Money files from the CD to your hard disk. It also determines whether and how your computer is connected to the Internet. The Installation Wizard runs automatically. All you need to do is click the Next button to move to the next step in the installation. The first step in the installation process, for example, asks you to stop any other programs you are running because the Installation Wizard won’t copy system files or update shared files—these are files the Money program needs to run—if these files are already in use by another program. The second step in the installation process is simply the copying of the Money program files from the CD to your hard drive. This takes a few minutes. NOTE While the Installation Wizard copies the files, it also displays a dialog box that describes how Money works and the ways in which you may want to use Money.

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Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

In the third step of the installation process (and you may not need to complete this step depending on the version of Windows running on your computer), the Installation Wizard asks you to restart your computer. After you finish these three steps, the Money installation is complete.

What if the wizard doesn’ doesn’tt start automatically? If the Installation Wizard doesn’t start automatically after you insert the Money CD in your CD-ROM drive, you can install the program by using the Add/Remove Programs tool found in the Windows Control Panel. To use the Add/Remove Programs tool, take the following steps: 1. Display the Control Panel. Click the Start button, choose Settings, and then choose Control Panel. Windows displays the Control Panel (see Figure 1-1).

Figure 1-1

The Control Panel.

Getting Started

3

2. Start the Add/Remove Programs tool. Double-click the Add/Remove Programs icon. Windows displays the Add/Remove Programs Properties dialog box (see Figure 1-2).

Figure 1-2

The Add/Remove Programs Properties dialog box.

3. Install the Money program. To install the Money program or any other program using this tool, click the Install button. Windows then searches the CD in your CD-ROM drive to find the Installation Wizard program, which is called SETUP. After the Add/Remove Programs tool finds the Installation Wizard, click the Finish button. Windows then installs the Money program. NOTE You can use the Add/Remove Programs tool to install other programs. You can also use this tool to uninstall programs you have previously installed.

How do I start the Money program? You start Money in the same manner that you start any Windows program. If during the installation process you agreed to have shortcut icons placed on the Windows desktop, you can simply double-click the Money shortcut icon.

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Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

You can also start Money by clicking the Start button, choosing Programs, and then choosing Microsoft Money. NOTE While you would not typically do this, you can also start the Money program by telling Windows to open the Money data file. The data file is the file Money uses to store your financial records. The file is typically located in the My Documents folder and is identified by its file extension, .mny.

How do I run the Money Setup Assistant? The first time you start Money after installation, Money asks you to run the Money Setup Assistant. The Setup Assistant helps you complete five general tasks necessary to begin using Money, as described below: 1. Tell Money which data file to use. The Setup Assistant asks whether there is an existing file of financial information that you want to use—such as from Quicken or a previous version of Money—or whether you want to start with a new file (see Figure 1-3).

Figure 1-3

The Setup Assistant first asks about the data file it needs to create for storing your financial records.

If you have used a previous version of Money or you have used Quicken, use your existing file as the basis for creating a new Money file. Otherwise, create a new file. Click the appropriate option button, and then click the Next button. 2. Provide some background information about your family. Next, the Setup Assistant asks you a handful of straightforward background questions. For example, the first question Money asks is what your name is (see Figure 1-4). The next questions Money asks are whether or not you want to track a spouse’s finances. The other questions are of a similar nature.

Getting Started

5

Figure 1-4

The Setup Assistant asks some background questions about you and your family.

When you are ready to move on to the next page of questions, click the Next button. To move back to the previous page of questions, click the Back button. Two important questions are a bit tricky, however. Near the end, Money asks you what your main currency is. This question might well be confusing for people who earn, spend, and save in just one currency—such as might be the case for residents of the United States who both live and work in the United States and therefore think only in terms of U.S. dollars. However, if you live in a location where you commonly receive or spend money in multiple currencies, this becomes an important issue. For example, if you live in Sweden, frequently work in Germany and the Netherlands, and then routinely travel to Great Britain, you actually have to deal with multiple currencies in your personal financial affairs. In this case, you would pick as your main currency the one in which you’re paid and in which you keep your principal banking records. NOTE Chapter 6 explains how to deal with the special case of keeping a bank account using a currency other than your main currency.

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Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

The second important but somewhat confusing question is about whether and how your computer is connected to the Internet. Money expects you to use the Internet as another tool for managing your affairs, and as a result, it asks whether you have successfully connected to the Internet from your computer. Money also asks how you are connected. Answer these Internet connectivity questions by clicking the appropriate option buttons. You don’t actually need to have an Internet connection to benefit from the use of Money though. Yes, the Internet is a powerful tool for managing your personal finances, but no, it isn’t essential. And it isn’t something you need to use Money for. 3. Create the accounts you’ll use for record keeping. Next, you create the specific accounts you want to use. For example, you need to identify the checking accounts, savings accounts, and credit card accounts you want to track. To tell the Setup Assistant which types of accounts you want to create, select check boxes that correspond to your different accounts. Selecting the Checking Account check box, for example, tells Money to set up a checking account (see Figure 1-5). Then, enter a number in the box to indicate how many accounts you want set up of a particular type.

Figure 1-5

The third task you complete with the Setup Assistant’s help is creating your accounts.

Getting Started

7

After you have provided this information, click the Next button. Money then asks for additional information about each of the accounts you need to set up. For each checking or savings account, for example, Money asks you to name the bank, choose a name for the account, and enter the starting balance. You provide each of these bits of information by typing it into the appropriate text box. For example, to provide the bank name, enter the name of the bank in the Bank Name text box. The process works in roughly the same way for any other account you set up. NOTE Clicking the down arrow at the right end of the Bank Name box displays a list of the banks that support online banking or bill paying with Money.

4. Describe your upcoming bills and deposits. Next, the Setup Assistant collects information about your upcoming bills and deposits. Money asks for this information for two reasons. First, so that it can simplify and improve the accuracy of your data entry. (Chapter 2 explains how this works.) Second, Money uses this information to help you budget and forecast your cash flow. The first questions that Money asks you about your upcoming bills and deposits concern who pays you, how much they pay you, and when they are going to pay you next (see Figure 1-6).

Figure 1-6

8

The fourth task you complete with the Setup Assistant’s help is describing your upcoming bills and deposits.

Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

The second set of questions that Money asks about your personal cash flow concern those bills that you commonly pay: a mortgage payment, rent, utility bills, car payment, or insurance premiums. You indicate which bills you pay by selecting check boxes that correspond to these types of regular bills. You also specify how many bills of a particular type you get. 5. Watch the video. Finally, watch a three-minute video tour of the Money program, demonstrating how you can best benefit by using the program. After you have completed these five tasks, the program displays the Money home page. In the future, when you start Money, this is the first window you will see after you start the program (see Figure 1-7).

Figure 1-7

The Money home page.

NOTE You may want to leave the Money CD in your CD-ROM drive while you use Money—or at least for the first few times that you use Money. The CD includes audio help files. These audio help files provide spoken help suggestions such as those you heard as you worked your way through the five tasks required to set up Money.

Getting Started

9

How do I sign up for online banking? To sign up for online banking, you need to talk to your bank. Specifically, you need to get the bank’s online banking application form, complete the form, and turn it in. After you have turned in the form, your bank will send you a letter that explains how to connect to the service—this is really very easy—and give you a personal identification number, or PIN, that you’ll need to supply to Money so it can communicate with the bank’s online banking system over the Internet. NOTE Your PIN may come in a second letter for security reasons.

Chapter 7 describes how you use online banking to pay bills, transfer money, and get up-to-date account information from your bank. But let me make a quick observation. Although online banking can be a very helpful tool, the feature isn’t so powerful that it warrants switching from one bank to another. Switching banks is a headache. You definitely don’t want to move from a well-run, convenient bank to a poorly run or inconvenient bank. What’s more, while online banking might save you time, it isn’t quite the silver bullet some of its proponents would have you believe.

How do I sign up for online investing? Online investing services work roughly the same way as online banking services. To use online investing, you need to sign up for the service with your online broker. This probably means you complete an application, and then receive and follow instructions on how to set up Money for use of the service. One clarification: You don’t actually buy and sell securities from within Money. Money’s support of online investing works like this: You buy and sell securities in the usual manner—probably using your web browser and an online broker’s web site. Money helps with your investment record keeping for this activity. What you may be able to do, what you should hope you will be able to do, is have the online brokerage web site automatically send investment transaction information to Money. By doing this, you won’t have to enter transactions in the Money investment registers. The online broker’s web site will do it for you. This is a great time saver—especially if you are an active trader.

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Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

Do I need to upgrade the Money software each year? This is a good question. Every fall, the companies that make and sell personal finance software—Microsoft and Intuit—release a new version of their software programs Money and Quicken. This makes some sense because tax rules change every year and over the past few years online banking opportunities have increased, and those changes have warranted new software features. However, I think it isn’t necessary to upgrade your software each year. Sure, you can upgrade without trouble or headache. Other than the expense of upgrading, there is no reason not to do so. And, in truth, each year’s software product is slightly better than the previous year’s product. In general, however, the new features added from one year to the next are not so useful that it means that you should automatically, unthinkingly, upgrade. A better approach for most people is to upgrade every other year or every third year. Another good approach is to upgrade only when you see that the new version of the software includes features that are of particular value to your financial management.

What if I want to switch from Money to Quicken or vice versa? Switching from one personal finance manager—like Money—to another personal finance manager—such as Quicken—isn’t difficult. The information that a program like Money or Quicken collects is stored in easy-to-interpret data files. As a result, Money easily retrieves data stored in a Quicken data file, and Quicken easily retrieves data stored in a Money file. However, while it is simple to move data from one program to another, there’s little reason to do so. Despite the advertising claims of the companies making the software— Microsoft and Intuit—there is not much difference between the programs. Certainly, there are nuances and subtleties that differentiate the two tools. But in terms of core features and true usefulness, we don’t think there are good reasons to switch from one to the other. Both programs are very good and extremely useful. Once you make the decision to begin using one of these tools and have begun to reap its benefits, there is little to be gained by moving to the other product. By far, the most important “upgrade” or “switch” that you can make is to simply stop using the paper-and-pencil method for tracking your financial affairs and instead step up to using a product like Money. Getting Started

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How should I begin using Money? One of the challenges of getting started with Money is that the program does so much. It isn’t difficult to install the Money software. And, as you have just seen, it also isn’t very difficult to set up the Money program so you can begin using it. Once you have done this, however, what you do next can be a bit befuddling. As a result, you may wonder what your next steps should be. One good way to start is to begin using Money to keep your main checking account. How you go about doing this is described in detail in the next chapter. This work principally consists of recording the deposits you make into your account and recording the withdrawals from that account. Once you start using Money in this way, you build a database that describes your day-to-day financial activities. At the end of the month, not only do you have good records of the money flowing into and out of your checking account but you can also summarize your cash inflows and outflows and your income and expenses. This core checkbook functionality really is the most important feature of the Money program. It’s the foundation upon which all of Money’s other features rest. If you start in this way—and even if this is all you ever do—you receive good value from the Money program and great payback from the effort you put into using Money.

How do I get more help if my questions aren’ aren’tt answered here? The Money Help menu, which appears when you click Help on the menu bar, provides information about using Money through its eleven commands: Help Topics, Online Help, Help For Quicken Users, Ordering Checks, Microsoft On The Web (which displays a submenu of further help commands), Introductory Videos (which also displays a submenu of commands), Accounts And Bills Videos, Investing Videos, Planner Videos, Taxes Videos, and About Microsoft Money. The principal Help menu command you will use is Help Topics. When you choose this command, Money opens the Money Help pane—this appears along the right edge of the Money window (see Figure 1-8). To use Money Help, type your question in the box in the lower right corner of the window and then click the Search button. Money Help then displays a list of help topics that may answer your question.

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Figure 1-8

The Money Help pane provides a box in which you type your questions.

Figure 1-9 shows the help topics that Money returns in answer to the question, “How do I print checks?” To get more information about one of these topics, simply click it. Money then displays the full help topic in the Money Help pane.

Figure 1-9

The Money Help pane lists help topics that may answer your question.

Figure 1-10 shows the help information for the print check topic. As is often the case, the help topic provides step-by-step instructions. The help topic also provides hyperlinks to other help topics. You can display these help topics by clicking the hyperlink. Getting Started

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Figure 1-10 Help topic information also appears in the Money Help pane.

If you are converting to Money from Quicken, you may also want to review the Help For Quicken Users command. This Help menu command displays a list of help topics specifically for people moving from Quicken to Money. If you choose this command, Money displays a list of topics that include converting a Quicken file to a Money data file, learning how to switch Quicken online service to Money online service, how to find equivalent Quicken commands in Money, and so on. The other Money Help menu commands are very straightforward. All you need to do is choose a command, and then follow the instructions displayed in the Help pane. For example, the Ordering Checks command displays help topics that explain how you can order check forms. The Microsoft On The Web command displays a submenu of commands—each of which brings you to a web page that relates to Money. The first Microsoft On The Web submenu command, for example, is Microsoft Money Home Page. If you choose this command—and if you have an Internet connection—Money displays the Microsoft Money home page in its window. (This page looks different each day.) Similarly, other commands on the Microsoft On The Web submenu show other web pages: the frequently asked questions page, the online support page, the send feedback web form, and so on.

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Predictably, the Introductory Videos command displays the Introductory Videos submenu. This submenu lists seven short multimedia videos that you can view to learn more about the Money program. The videos include “What Money 2001 Can Do for You,” “How to Get the Most Out of Money 2001,” and so on. The last command on the Help menu is About Microsoft Money. If you choose this command, Money displays a dialog box that provides system information about the Money program, copyright information, and serial number data. You typically won’t use this command, except if you call Microsoft for product support and the product support person directs you to use this command. (The technical support representative might do this to get specific information about your computer system.)

How do I use Money Express? After you install Money, Windows starts the Money Express program every time you start Windows and at the start of each new day. The Money Express program displays financial information that you might want to know about on a daily basis. The Money Express window shows a list of upcoming bills and deposits that you may need to record or make. If you scroll down the page, you’ll also see and have the opportunity to read other bits of financial information, such as tips for reducing your taxes or saving money on the insurance you buy. Money presents these tips, by the way, based on the transactions you record. This information becomes increasingly useful after you’ve begun to use the Money program. The Money Express window also has three command buttons you can use to do more than just read information. Click the New Transaction button, for example, to display a menu of commands you can use to record checks and deposits directly into the Money account registers. Click the Options button to display a dialog box that lets you change, to a minor degree, the way the Money Express program works. (You make changes by selecting or clearing three boxes labeled with self-explanatory descriptions.) Finally, click the Close button to close the Money Express window. NOTE Chapter 2 answers questions about recording check and deposit information in the Money account register.

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Chapter 2

KEEPING A CHECKBOOK

Questions Answered in This Chapter • How do I record checks? • How do I record ATM withdrawals? • How do I record a check that pays multiple categories? • How do I record deposits? • How do I void a check? • How do I void a deposit? • How do I handle debit card transactions? • How do I record automatic withdrawals and deposits? • How do I record an account transfer? • How do I print a check? This chapter describes how you use the Microsoft Money 2001 program to keep track of your checkbook and, as result, your bank account balances, withdrawals, and deposits. This sounds like meaningless bookkeeping, perhaps, but this activity is actually the most important thing you can do with Money. By keeping good, detailed financial records, you create a rich database that makes it easy to track income and outgo, create good budgets and financial plans, and keep close tabs on both your assets and debts.

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How do I record checks? To record the checks you write using Money, start the Money program, pick the account you used to write the check, and then describe the check in detail, including the payee, the check date, and the amount. This process works almost identically to the equivalent pen-and-paper register approach. If you want to record the mortgage check you have just written, for example, start Money, indicate the account you used to write the check, and then name the mortgage company, identify the payment date, and specify the mortgage payment amount. To record checks, take the following steps: 1. Start the Money program. Start Money by double-clicking the Money shortcut icon on your Microsoft Windows desktop. You can also click the Start button, choose Programs, and then choose Microsoft Money. Using either technique, Windows starts the Money program. Figure 2-1 shows the Money home page as it appears after you start Money.

Figure 2-1

The Money home page.

2. Display the appropriate account register. The easiest way to display the register for the account you are using is to click the account name listed in the Favorite Accounts area of the Money home page (see Figure 2-1). Figure 2-2 shows how an account register looks.

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NOTE If you don’t see the account listed in the Favorite Accounts list, you can also click the Accounts & Bills link and then select Account List to display a list of all your Money accounts. (The Accounts & Bills link appears next to the Home button.) When the Accounts list appears, click the account you want to see in an account register.

Figure 2-2

The account register resembles a standard paper register.

3. Indicate that you want to write a check. To tell Money that you want to write a check, first click the Withdrawal tab in the transaction entry area beneath the actual account register. Then click the New button, select the Common Withdrawals list, and select Write A Check. Money opens up input boxes, or fields, in the transaction entry area that you use to record information about the check. 4. Provide the check number. You can enter the check number directly into the Number box, or you can click the Number box’s button to display a list of check number entries. This list includes Next Check Number, which tells Money you want to add one to the most recently specified check number. This list also includes Print This Transaction, which tells Money to print the check later. NOTE How you print checks is discussed later in this chapter in the answer to the question, “How do I print a check?”

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5. Provide the check date. Select the Date box by either pressing the Tab key or clicking the mouse and then entering the check date. You can type a date using the regular date format, or click the box’s button to display a pop-up calendar that you can use to select the date. To use the pop-up calendar, click the day you want to enter. Although the calendar displays only one month’s worth of dates, click the arrows that appear on either side of the month name to move to the previous or upcoming month. NOTE Money also provides several codes that you can use to enter dates once the Date box is selected. Type the letter t to tell Money to enter today’s date in the Date box. Type m to enter the first day or h to enter the last day in the current month in the Date box. Type y to enter the first day of the year or r to enter the last day of the year in the Date box. Notice that t is the first letter in the word today, that m and h are the first and last letters in the word month, and that y and r are the first and last letters in the word year. This bit of trivia should help you remember these codes. NOTE The date entry codes work for any Date box in Money.

6. Identify the person you are paying. Press the Tab key or click the mouse to select the Pay To box. Then enter the name of the person or business you are paying with the check. Money keeps a list of all the people or businesses to whom you have previously written checks. To select a name from this list, click the Pay To box’s button so that Money displays a list of past payees. Then select a name from the list by clicking. 7. Record the check amount. Press the Tab key or click the mouse to select the Amount box, and then enter the check amount. Or click the Amount box’s button to display a pop-up calculator you can use to calculate the check amount. 8. Categorize the check. Perhaps the most powerful feature of Money is that it lets you categorize the checks you write as well as the deposits you make. This means that at the end of the month or year, you can easily prepare a report of your income and spending by category. Money initially sets up a rich set of spending categories that you can use to describe your spending. For many of these categories, Money also provides subcategories.

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To categorize a check, press the Tab key or click the mouse to select the Category box. Next, click the Category box’s button so that Money displays a list of categories you can use to describe the reason for your check. Then click a category. You can also record a subcategory for the check. To do this, press the Tab key or click the mouse to select the Subcategory box. Next, click this box’s button so that Money again displays a list—this time a list of subcategories. Then click a subcategory. NOTE The Subcategory box isn’t labeled; however, you can easily identify it. The Subcategory box appears just to the right of the Category box.

9. (Optional) Record a memo description. You don’t have to record a memo description for the checks you write, but Money provides space if you choose to include additional information about a check. If you want to collect this information—and it’s not a bad idea—press the Tab key or click the mouse to select the Memo box. Then enter any additional information you want to store in the field. 10. Record the check. Once you have correctly described the check you are writing or are about to write, click the Enter button. This tells Money to record the check in the register. As soon as Money records the check in your register, it also updates the account balance. Figure 2-3 shows how the account register looks after recording the first check.

Figure 2-3

The account register with a recorded check.

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NOTE The first time you record a check to a particular payee, Money asks whether the check is a recurring transaction. If you answer “yes,” Money adds the check to its list of recurring transactions. The useful feature of this recurring transactions list is that Money will remind you in the future to record this check. If you have trouble remembering to record checks—or even pay bills—this recurring transactions list can be a time saver and hassle reducer.

How do I record A TM withdrawals? ATM An ATM transaction works just like a check. Accordingly, you record an ATM transaction in the exact same way that you record a check. You indicate the date of the withdrawal, the amount of the withdrawal, and if it’s appropriate, you record other information about the withdrawal. NOTE One thing that seems different about an ATM transaction is the Pay To person or business. In the case of an ATM withdrawal, you, the account holder, are probably the Pay To person.

How do I record a check that pays multiple categories? You’ll typically need to record a check that pays multiple categories. For example, suppose you write a check to the grocery store, but the check (in the amount of $100) pays for $50 of groceries and $50 of clothing. Clearly, you want to record the check as falling into both of these categories. To deal with this real-life, everyday occurrence, the Withdrawal tab includes a Split button just to the right of the Subcategory field. If you click the Split button, Money displays the Transaction With Multiple Categories dialog box (see Figure 2-4). This dialog box lets you specify more than one category and category amount for a check. Each category of spending for a check gets recorded on its own line in this dialog box. For example, if you take a close look at Figure 2-4, you can see that the first line of spending information shows $50 of groceries. The second line of category spending information shows $50 of clothing.

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Figure 2-4

The Transaction With Multiple Categories dialog box.

When you finish recording the multiple categories of spending for a check, click the Done button. Money then closes the Transaction With Multiple Categories dialog box. However, to show that you have recorded multiple spending categories for the check, Money puts the phrase split/multiple categories in the Category box. Everything else about recording a check with multiple categories works the same way as for a check with only a single spending category. One interesting feature of working with multiple spending categories on a check is that although the categories listed in the Transaction With Multiple Categories dialog box need to total the check amount, the category amounts don’t all need to be positive values. For example, in the case of a $100 check, you might have two $50 categories. That makes sense, obviously. But another way to produce a $100 check amount is to spend $150 but subtract $50, such as for a refund or redeemed gift certificate. In this case, you would record the categories shown in Figure 2-5.

Figure 2-5

The Transaction With Multiple Categories dialog box showing how to record a check that includes redemption of a gift certificate.

How do I record deposits? You record deposits in the Money account register in roughly the same way that you record a deposit in a paper register. You note the source for the deposit along with the date and the amount. In the case of a payroll check, for example, you would indicate that the money is coming from your employer, the payday date, and the paycheck amount.

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To record a deposit, take the following steps: 1. Start the Money program. Start Money by double-clicking the Money shortcut icon. You can also click the Start button, choose Programs, and then choose Microsoft Money. 2. Display the appropriate account register. To display the register for the account in which you are depositing money, click the account name listed in the Favorite Accounts area of the Money home page. If you don’t see the account listed, click the Accounts & Bills link and then select Account List to display a list of all your Money accounts. Then click the account you want. 3. Indicate that you want to record a deposit. To tell Money that you want to record a deposit, first click the Deposit tab in the transaction entry area beneath the account register. Then click the New button. Money opens up input boxes, or fields, in the transaction entry area that you use to record information about the deposit. 4. Provide the deposit reference number. Use the Number box to record the deposit reference number. It’s also fine to leave this field empty. 5. Provide the deposit date. Select the Date box by either pressing the Tab key or clicking the mouse and then entering the date. You can type a date using the regular date format, or click the box’s button to display a pop-up calendar that you can use to select the date. To use the pop-up calendar, click the day you want to enter. NOTE As noted earlier in the answer to the question, ”How do I record a check?,” Money provides several codes that you can use to enter dates after the Date box is selected: t for today’s date, m for the first day or h for the last day in the current month, and y for the first day or r for the last day of the year.

6. Identify the source of the deposit. Press the Tab key or click the mouse to select the From box. Then enter the name of the person or business paying you. Money keeps a list of all the people or businesses whom have previously paid you money. To select a name from this list, click the From box’s button so that Money displays a list of past payers. Then select a name from the list by clicking.

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7. Record the deposit amount. Press the Tab key or click the mouse to select the Amount box, and then enter the deposit amount. Or click the Amount box’s button to display a pop-up calculator you can use to calculate and then enter the amount. 8. Categorize the deposit. To categorize a deposit, press the Tab key or click the mouse to select the Category box. Next, click the Category box’s button so that Money displays a list of categories you can use to describe the reason for your deposit. Then click a category. If appropriate, you can also record a subcategory for the deposit. To do this, press the Tab key or click the mouse to select the Subcategory box. Next, click this box’s button so that Money again displays a list—this time a list of subcategories. Then click a subcategory. The Subcategory box appears just to the right of the Category box. 9. (Optional) Record a memo description. You don’t have to record a memo description for deposits, but Money provides space if you choose to include additional information about a check. To collect this information, press the Tab key or click the mouse to select the Memo box and then enter the additional information you want to collect. 10. Record the deposit. Once you have correctly described the deposit, click the Enter button. Money records the deposit in the register and updates the account balance. Figure 2-6 shows how the account register looks after recording the first deposit.

Figure 2-6

The account register with a recorded deposit. Keeping a Checkbook

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NOTE The first time you record a deposit from a particular payer, Money asks whether the deposit is a recurring transaction. If you answer “yes,” Money adds the deposit to its list of recurring transactions. As with recurring withdrawal transactions, Money will remind you in the future to record this deposit.

How do I void a check? If you incorrectly record a check in a register, you need to void the check to show that the check wasn’t actually used and will never be cashed. It’s important to keep track of all the checks you’ve written, started to write, written but then not sent, and so on. You can do this by recording the checks in the register as voided checks. NOTE In general, you never want to delete checks from a register if you have actually written the check—even when the check hasn’t been cashed.

To void a check in Money, take the following steps: 1. Display the account register. To display the account register for the check you want to void, click the account name listed in the Favorite Accounts area of the Money home page. If you don’t see the account listed, click the Accounts & Bills link and then select Account List to display a list of all your Money accounts. Then click the account you want. 2. Select the check. To select the check that you want to void, simply click it. If another check in the register is selected, press the Up or Down arrow keys to select the check. 3. Void the check. Right-click the check you want to void so that Money displays a shortcut menu. Choose Mark As, and then choose Void from the submenu. Money changes the check’s cleared status—this is what shows in the column labeled “C” in the register—to “R” (see Figure 2-7). And Money writes the word void in the balance column. In this way Money indicates that this check won’t be used in any future bank reconciliations, nor in calculations of your account balance.

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Figure 2-7

The account register with a voided check.

Even after you’ve voided a check in the register, Money keeps a record of the other bits of check information, including the check number, date paid, and amount. You want to keep a record of this information because if a check—perhaps a check you have written—does end up getting cashed, you need to have this data, and also, the reasons you have for voiding the check. For example, perhaps you wrote a check to somebody for work he or she was supposed to do but didn’t end up doing. Or perhaps you voided a check because it was a duplicate check. In general, by keeping a record of information about voided checks in the register—there is really no other place to keep this information—you also store information about the reasons for voiding the check. And that’s important. NOTE You might want to use the Memo box for the check to record the reasons for voiding the check. For example, if the reason you voided a check is because of an error in recording the amount on the face of the check form, you might want to note this in the memo description.

How do I void a deposit? You void a deposit transaction in the same way and for the same sorts of reasons that you void a check transaction. For more information about how this works, refer to the preceding question-and-answer discussion.

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How do I handle debit card transactions? Debit card transactions work exactly like checks. The only difference really is that you don’t have a check form, but rather a bundle of electronic, digital information that runs from the store’s debit card machine to your bank’s computer. This mechanical difference is transparent to Money, so when you want to record a debit card transaction, follow the same steps as those for writing a check: 1. Display the appropriate account register. To display the register for the account you are using to record the debit transaction, click the account name listed in the Favorite Accounts area of the Money home page. If you don’t see the account listed, click the Accounts & Bills link to display a list of all your Money accounts. Then click the account you want. 2. Indicate that you want to record a debit transaction. To tell Money that you want to record a debit transaction, first click the Withdrawal tab in the transaction entry area. Then click the New button, select the Common Withdrawals list, and select Debit Card Purchase. Money opens up input boxes, or fields, in the transaction entry area that you use to record information about the debit transaction. 3. Provide the debit reference number. Use the Number box to record the debit reference number. It’s also fine to leave this field empty. 4. Provide the debit transaction date. Select the Date box by either pressing the Tab key or clicking the mouse and then entering the withdrawal date. You can type a date using the regular date format, or click the box’s button to display a pop-up calendar that you can use to select the date. 5. Identify the person you are paying. Press the Tab key or click the mouse to select the Pay To box. Then enter the name of the person or business you are paying with the debit transaction. Alternatively, click the Pay To box’s button so that Money displays a list of past payees. Then select a name from the list by clicking. 6. Record the debit amount. Press the Tab key or click the mouse to select the Amount box. Then enter the debit amount. Or click the Amount box’s button to display a pop-up calculator you can use to calculate and enter the debit amount. 28

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7. Categorize the debit transaction. To categorize the debit transaction, press the Tab key or click the mouse to select the Category box. Next, click the Category box’s button so that Money displays a list of categories you can use to describe the reason for your debit transaction. Then click a category. You can also record a subcategory for the debit transaction. To do this, press the Tab key or click the mouse to select the Subcategory box. Next, click this box’s button so that Money again displays a list—this time a list of subcategories. Then click a subcategory. 8. (Optional) Record a memo description. If you want to collect additional information about the debit transaction, press the Tab key or click the mouse to select the Memo box. Then enter any additional information you want to store in the field. 9. Record the debit transaction. Once you have correctly described the debit transaction, click the Enter button. This tells Money to record the withdrawal in the register. As soon as Money records the debit transaction in your register, it also updates the account balance. Figure 2-8 shows how the account register looks after recording a debit transaction.

Figure 2-8

The account register with a debit transaction.

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How do I record automatic withdrawals and deposits? Mechanically, automatic withdrawals work the same way as any other withdrawals. For example, paying your mortgage payment via an automatic withdrawal works identically to paying your mortgage payment using a check. Similarly, automatic deposits work the same way as regular manual deposits. For example, an automatic deposit of your payroll check works the same way as a manual deposit of your payroll check. One feature of an automatic withdrawal or automatic payment, however, bears mentioning. Automatic withdrawals and automatic deposits are often regular and recurring. For example, an automatic withdrawal to pay your mortgage payment occurs every month. An automatic payroll deposit that occurs every Friday, hopefully, keeps occurring every Friday—or at least as long as you keep that job. When you do have automatic withdrawal or deposit transactions that recur regularly, you may want to add the transactions to Money’s list of recurring transactions. To set up a recurring transaction, take the following steps: 1. Display the account register. To display the register for the account with the transaction you want to add to the list of recurring transactions, click the account name listed in the Favorite Accounts area of the Money home page. If you don’t see the account listed, click the Accounts & Bills link and then select Account List to display a list of all your Money accounts. Then click the account you want. 2. Select the withdrawal or deposit transaction. To select the withdrawal or deposit transaction, simply click it. If another transaction in the register is selected, use the Up and Down arrows keys to select the withdrawal or deposit. 3. Add the transaction to the recurring transactions list. Right-click the check you want to void so that Money displays a shortcut menu. Choose Add To Bills And Deposits. When you do this, Money starts a small wizard that displays a few dialog boxes that ask how often the bill or deposit occurs, how you will make the payment if you are entering a bill, and whether the bill or deposit is usually a set amount. Figure 2-9 shows the last dialog box that this wizard displays, which summarizes the information the wizard has collected about the recurring transaction. If the information is correct, click the Finish button to have Money add the transaction to its list. 30

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Figure 2-9: The final dialog box for creating a recurring deposit transaction.

To record a recurring withdrawal, click the Common Withdrawals button on the Withdrawal tab. When Money displays the Common Withdrawals menu, choose Upcoming Bills. When Money displays another menu of recurring transactions, select the one you want to record. To record a recurring deposit, click the Common Deposits button on the Deposit tab. When Money displays the Common Deposits menu, choose Recurring Deposits. By selecting one of the transactions listed, you effectively tell Money to fill out the rest of the Withdrawal tab fields or the Deposit tab fields with the information from the recurring transaction. This ability to reuse withdrawal or deposit transaction information makes it very easy to record recurring regular transactions, such as automatic withdrawals and deposits.

How do I record an account transfer? To record an account transfer, you record the transfer in one of the accounts involved in the transfer. For example, if you are moving money from your checking account to your savings account, you record the transfer in either the checking or savings account. Predictably, all a transfer transaction really does is name the transfer amount and identify the two accounts. To record an account transfer, take the following steps: 1. Display one of the account’s registers. You can record an account transfer in either account. To display one of the account’s registers, click the account name listed in the Favorite Accounts area of the Money home page. Or click the Accounts & Bills link, and then select Account List to display a list of all your Money accounts. Then click the account you want.

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2. Click the Transfer tab. To indicate that you are recording an account transfer, click the Transfer tab. The Transfer tab provides input boxes, or fields, you use to describe an account transfer. 3. Specify the transfer date. Press the Tab key or click the mouse to select the Date box, and then enter the transfer date. Or click the Date box’s button to display a pop-up calendar that you can use to select the date. You can also use the date entry codes t, m, h, y, and r to enter the current date, the first or last day of the month, or the first or last day of the year. 4. Specify the account from which you are transferring money. Press the Tab key or click the mouse to select the From box. Then click the From box’s button to display a list of the accounts that you have already set up. From this list, select the account from which you are transferring the money. 5. Select the account to which you are transferring money. Press the Tab key or click the mouse to select the To box. Then click the To box’s button to display a list of the accounts you set up under Money. Click the account to which you are transferring the money. 6. Specify the transfer amount. Press the Tab key or click the mouse to select the Amount box. Then enter the amount of the transfer. You can enter the transfer amount by using the numeric keypad on your computer keyboard, or you can click the Amount box’s button to display a pop-up calculator that you can also use to specify the amount. 7. (Optional) Record any needed additional information. You don’t have to record any other information to fully record the transfer transaction. However, Money does allow you to specify a Pay To entry, a memo description, and even a transfer number. If you want to record information in these fields, go ahead and do so. 8. Record the transfer transaction. After you have correctly and fully described the transfer transaction, click the Enter button. Money then records the transfer transaction both in the account from which you are moving money and the account to which you are moving money. Figure 2-10 shows the Transfer tab completed to record money transferred from a checking account to a savings account. The transfer amount is $100. This transaction would reduce the balance of the checking account by $100 and increase the balance of the savings account by $100. 32

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Figure 2-10 The account register with a transfer transaction.

How do I print a check? You don’t need to print checks with Money. You can still write checks by hand. But Money lets you print checks easily, which can be a time saver—especially if you have a lot of checks to print. To print checks in Money, you record the checks in the account register in roughly the same way—and then tell Money to print the checks. To print a check, take the following steps: 1. Display the account register. To display the account register, click the account name listed in the Favorite Accounts area of the Money home page. Or click the Accounts & Bills link, and then select Account List to display a list of all your Money accounts. Then click the account you want. 2. Indicate that you want to record a withdrawal. To tell Money that you want to record a withdrawal transaction, first click the Withdrawal tab in the transaction entry area. Then click the New button, select the Common Withdrawals list, and select Write A Check. Money opens up input boxes, or fields, in the transaction entry area that you use to record information about the check you’re going to print.

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3. Specify that this check is one that Money should print. Press the Tab key or click the mouse to select the Number box. However, rather than entering a check number in this box or asking Money to calculate the next check number, select Print This Transaction from the Number box—or type the word print in the Number box. 4. Specify the date you want to print the check. Select the Date box by either pressing the Tab key or clicking the mouse and then entering the check date. You can type a date using the regular date format, or click the box’s button to display a pop-up calendar that you can use to select the date. 5. Provide the name of the person or business you want to pay when you write the check. Press the Tab key or click the mouse to select the Pay To box. Then enter the name of the person or business you are paying by printing a check. Alternatively, click the Pay To box’s button so that Money displays a list of past payees. Then select a name from the list by clicking. 6. Record the check amount. Press the Tab key or click the mouse to select the Amount box. Then enter the check amount. Or click the Amount box’s button to display a pop-up calculator you can use to calculate the check amount. 7. Categorize the check. To categorize a check, press the Tab key or click the mouse to select the Category box. Next, click the Category box’s button so that Money displays a list of categories you can use to describe the reason for your check. Then click a category. You can also record a subcategory for the check. To do this, press the Tab key or click the mouse to select the Subcategory box. Next, click this box’s button so that Money again displays a list—this time a list of subcategories. Then click a subcategory. 8. (Optional) Provide a memo description. If you want to collect additional information about the check you’re printing, press the Tab key or click the mouse to select the Memo box. Then enter any additional information you want to record. 9. Record the check. After you have correctly described the check, click the Enter button (see Figure 2-11).

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Figure 2-11 The account register with a check that will later be printed.

10. As necessary, provide the address. Because you entered the word print in the Number box, Money knows this is a check to be printed. For this reason, when you record the check, Money searches for an address for the payee. If it doesn’t find one, Money requests the address using the Print Address dialog box, as shown in Figure 2-12. To complete this dialog box, simply enter the address information requested. Do this by completely filling out the Address, City, State, Zip Code, Phone Number, and Account Number fields supplied. Then click the OK button. Money uses this information to print the check in such a way that you can send it using a window envelope. Note, too, that the account number gets printed on the face of the check, so whomever you are paying knows why you are paying. This bit of information is particularly important when you are paying businesses that have previously billed you.

Figure 2-12 The Print Address dialog box.

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11. Repeat steps 3–10 for the other checks you want to print. In general, it’s more efficient to print your checks in batches. But you can, of course, print checks one at a time. 12. Tell Money to print the checks. After you record one or more to-be-printed checks in a register, Money adds a “to do” list to the list of tasks along the left edge of the Money window. To indicate that you want to print checks, click the Print Checks task, which appears on this list. Money displays the Print Checks dialog box, which asks you to confirm that you want to print all of the to-be-printed checks, asks for the number of the first check— this should be the same number that is printed on the face of the check—and asks how many check forms are on the first page of the check form paper that you are going to put into the printer (see Figure 2-13). Now is a good time to load the printer.

Figure 2-13 The Print Checks dialog box.

Answer these questions by clicking the appropriate buttons and entering the appropriate information in the text boxes. Then click the Print button. If you want to print a test check to make sure everything aligns correctly, or if you want to make sure you loaded your forms into the printer correctly, click the Print Test button. If you want to print only a subset of the checks to be printed, click the Selected Checks button. Money then displays the Select Checks dialog box, as shown in Figure 2-14.

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Figure 2-14 The Select Checks dialog box.

After you print the checks, Money updates the check numbers recorded in the account register. All that’s left to do is sign and send them.

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Chapter 3

BALANCING YOUR BANK ACCOUNTS

Questions Answered in This Chapter • How does account reconciliation work? • How do I reconcile a bank account? • What should I do when my account won’t balance? • How do I record interest earned on an account? • How do I record bank service fees? • Will reconciliation correct and detect all errors? Balancing, or reconciling, your bank accounts represents an important financial management task. By regularly reconciling your records with those of the bank, you improve the accuracy of your bookkeeping, you assure that bank errors haven’t been made, and you also reduce the chance that you aren’t the victim of fraudulent transactions, such as those perpetrated by a forger.

How does account reconciliation work? On any given day, a comparison between what your records show is the balance in your bank account and what the bank’s records show will yield a discrepancy. Reconciling a bank account simply explains the difference between your records and the bank’s.

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In general, two factors explain the differences between the two sets of records: First, there are the transactions you haven’t recorded but that have been recorded by the bank, such as transactions you’ve forgotten to record as well as transactions for items such as bank fees and interest that you won’t know about until you see them on the bank statement. Second, there are the transactions you’ve recorded but that haven’t yet been recorded by, or cleared, the bank. The process of reconciling any account involves looking carefully at both factors. For example, typically your first step is to look for and then record any transactions you forgot or didn’t know about before seeing the statement: cash machine transactions, forgotten checks, interest, and monthly service fees. Once you’ve done this, you then identify and total the transactions that you recorded but that haven’t yet been recorded by the bank, such as outstanding checks and deposits in transit. The total of these transactions should explain the difference between your recorded balance—this is what Microsoft Money 2001 shows—and the bank’s balance—this is what appears on the bank statement. When the total uncleared transactions don’t explain the difference between your records and the bank’s, you need to repeat the two steps discussed in the preceding paragraphs. You’ve made a mistake in at least one of them.

How do I reconcile a bank account? To balance, or reconcile, an account in Money, you simply identify the bank account you want to reconcile. Then you use Money’s account reconciliation feature to explain the difference between Money’s balance and the bank’s balance. NOTE If you are taking advantage of Money’s online banking features, you may be able to reconcile your bank account automatically. How you do this is described in Chapter 7 in the answer to the question, “How do I reconcile an online account?”

To reconcile an account, take the following steps: 1. Display the bank account you want to reconcile. To display the account register for the account you want to reconcile (see Figure 3-1), click the account name listed in the Favorite Accounts area of the Money home page. If you don’t see the account in the Favorite Accounts list, click the Accounts & Bills link and then select Account List to display a list of all your Money accounts. Then click the account you want. 40

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Figure 3-1

The account register.

2. Tell Money you want to balance the account. Along the left edge of the Money window is a list of common tasks. When the Money window shows the account register for a bank account, one of these tasks is Balance This Account. By clicking this task link, you tell Money that you want to reconcile the account displayed in the window. After you click the task link, Money displays the bank reconciliation dialog box, as shown in Figure 3-2. (To label the dialog box, Money uses the name of the bank account.)

Figure 3-2

The bank reconciliation dialog box. Balancing Your Bank Accounts

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3. Provide the statement date. To begin the reconciliation process, enter the statement date in the Statement Date box. This date comes directly from your bank statement. Click the Statement Date box’s button to display a pop-up calendar that you can use to select a date. 4. Enter the starting balance. Enter the beginning account balance from your bank statement in the Starting Balance box. If you were reconciling a bank account using the January bank statement, for example, the starting balance might be the balance on January 1, or whatever the first day is of the statement month. Click the Starting Balance box’s button to display a pop-up calculator that you can use to enter or calculate the correct starting balance. 5. Enter the ending balance. Enter the ending account balance from your bank statement in the Ending Balance box. This is the bank account balance on the last day of the statement. If you were balancing an account using the January statement, for example, the ending balance might be the bank account balance on January 31. NOTE Statement months don’t always run from the first day of the month to the last day of the month. Sometimes a statement month actually begins the second or third day of the month or maybe even the last or next to the last day of the previous month. Similarly, a statement doesn’t always end on the last day of the month. It could end a day or two late or early.

6. Enter the service charge. To record a service charge, you enter two or three pieces of information. First, enter the service charge amount from your bank statement in the Service Charge box. Clicking the Service Charge box’s button displays a calculator that you can use for entering or even calculating the amount. Second, categorize the service charge using the Category box. Money initially suggests that you use its Bank Charges category, but you can select or create some other spending category if you prefer. Money also supplies a Subcategory box. Clicking the Category and Subcategory boxes’ buttons displays a list of spending categories. 7. Enter the amount of interest earned. To enter the amount of interest earned during the statement month, you again enter two or three pieces of information. First, enter the amount of interest actually earned in the month in the Interest Earned box. Clicking the Interest Earned box’s

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button displays a pop-up calculator. Second, categorize the interest earned by entering an income category in the Category and, optionally, Subcategory box. Clicking the Category and Subcategory boxes’ buttons displays a list of categories or subcategories. NOTE The Interest Earned category won’t actually be a spending category. It will be an income category.

8. Identify the cleared transactions. Click the Next button. Money then displays a special version of the account register window (see Figure 3-3). You use this account register to identify the cleared transactions for the account.

Figure 3-3

The account register window used for bank reconciliation.

9. Mark the cleared transactions. Using the reconciliation version of the account register window, review each of the transactions that have cleared the bank. If you see a transaction in the register that also appears—in other words, is cleared—on the bank statement, mark it as cleared. To do this, find the column labeled with a “C”—the “C” stands for cleared—and click the box for that transaction. For example, in Figure 3-3, the second transaction listed might appear on the bank statement. This means that the transaction needs to be marked as cleared. To do this, click the “C” field in the window. Money then puts a “C” in that box. Repeat this step for each transaction that has been recorded by your bank.

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10. Click the Next button to indicate that you are finished. Along the left edge of the screen, Money provides information about the account you are balancing. Most important is the Difference amount reported about twothirds of the way down this body of information. When your account balances, the difference should show as zero. For example, after the simple list of transactions shown in Figure 3-3 is reconciled, the difference shows as zero. Figure 3-4 shows how the Money window looks when this is the case.

Figure 3-4

The account register window after the account balances.

After you complete the reconciliation—in other words, once the Money records match the bank’s records—click the Next button. When you do this, assuming that your account balances, Money displays another dialog box telling you that you have successfully balanced your account. To conclude the reconciliation process, click the Finish button. If you have trouble reconciling your account, note that the window used for marking cleared transactions also includes a Postpone button. If you click this button, you save your partially completed reconciliation work. You can then come back to the work later by reinitiating this process.

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What should I do when my account won’ won’tt balance? Once you begin to balance your account regularly, you will only irregularly have trouble reconciling it. However, if you are just getting started, you may have trouble getting your account to balance. Here are some suggestions for balancing an account that’s causing you trouble. Account balance trouble stems from only three causes: • You forgot to record a transaction, or perhaps several transactions. • You cleared a transaction the bank hasn’t recorded. • Either you or your bank incorrectly recorded a transaction. Therefore, when you find yourself with reconciliation troubles, first make sure that you are not missing some transaction. Go through the bank statement line for line, comparing each of the transactions listed there with the contents of your account register. If you find the bank statement lists a transaction that your Money account register does not, then you need to record it in Money. Once you confirm that the Money account register includes all transactions, verify that you have not incorrectly cleared transactions that are still outstanding. To do this, thoroughly review the Money account register and make sure that each transaction marked with a “C” does, in fact, appear on the bank statement. If the two reviews described in the preceding paragraphs don’t explain the difference between your records and the bank’s, you need to check the actual transaction amounts that you have recorded against those shown in the bank register. In other words, if the bank register shows a check to your mortgage company for $500, you need to make sure that your account register also records the check as $500. Unfortunately, it is easy to incorrectly record transaction amounts in the Money account register. All it takes is pressing the wrong key. And, in fact, two data entry errors are particularly difficult to see: transposition errors and sign errors. Transposition errors occur when you transpose, or flip-flop, the numbers in an amount. If you write a check for $123, but record the check as $132, for example, you’ve transposed the 2 and the 3. And this error is hard to spot later. You look at the bank statement, for example, and see the digits 123. Then when you look at the account register and Money, you see the digits 132. Unless you are looking not just at the digits used but also at their order, you may miss this error. Balancing Your Bank Accounts

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Sign errors occur when you enter a deposit as a withdrawal, or a withdrawal as a deposit. All this really means is that you have entered some transaction amount in the wrong column. Again, this error is sometimes tough to spot because the transaction appears both on the bank statement and in your register—just in the wrong column in the Money register. If you come up with some difference with your records and the bank’s that is irreconcilable, try dividing the error by 2. Then look for a transaction equal to this result. For example, if you have a $200 error, divide $200 by 2 to get the result $100. Then look for a $100 transaction that is entered in the wrong column.

How do I record interest earned on an account? You can record the interest that the bank pays you on your account in one of two ways. One way is to record it when you reconcile your account. If you do this, you record the interest earned and income category as part of the reconciliation process. This is the easiest and most popular method. (We described this approach in the answer to the earlier question, “How do I reconcile a bank account?”) You can also record interest income in the register like any other deposit transaction. To do this, record the deposit and then categorize it as interest earned or some other appropriate category. NOTE For more information about how to record a deposit, refer to Chapter 2 for the answer to the question, “How do I record deposits?”

While you can use either of the methods just described for recording interest, you need to pick one method and stick with it. If you record interest income as part of the reconciliation process, for example, you shouldn’t record interest income directly into the register. If you want to record interest income directly into the register, like a deposit, you obviously can’t record interest income during the reconciliation process.

How do I record bank service fees? Bank service fees can also be recorded in one of two ways. You can record the bank service fee when you reconcile your account, as described in answer to the earlier question, “How do I reconcile a bank account?” Or you can record bank service fees directly in the register like any other withdrawal.

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As is the case with recording interest earned, pick a method and then stick with it. If you mix and match—recording bank service fees some months in one way and some months in another way—it is very likely that you will forget to record service fees in some months and then enter service fees twice in other months. And then you’ll have trouble and have to go to extra work to reconcile the account.

Will reconciliation correct and detect all errors? There are several common errors that account reconciliation won’t catch. We’ll briefly describe these errors here, because if you know about them—and most importantly know their effect—you are less likely to make them. You also increase the chances that you’ll detect and correct the errors. The first kind of error that reconciliation won’t catch is one in which you forget to record a transaction in Money and the transaction hasn’t yet cleared the bank. If you forget to record a check and the check is still outstanding at the end of the statement month, for example, the check doesn’t appear in your register and it doesn’t get listed on your bank statement. In this case, your Money account register actually overstates your account balance by the amount of the check you forgot. You’re more likely in this situation to overdraw your account, of course, because you think you have more money than you actually do. A deposit error can occur in roughly the same way, except that the amounts are flipflopped. If you forget to record a deposit in Money and it hasn’t yet cleared the bank, the Money account register understates your true account balance. In this case, you are holding cash in your account that you are not even aware of, which means that you may lose interest on it (perhaps by forgetting to move the money to your money market account). Another kind of error that a bank reconciliation won’t catch stems from entering a fictitious transaction in the Money account register. For example, if you enter a check in the Money account register that you never wrote or a deposit you never made, the check or deposit will never clear the bank. In this case, the Money account register includes a fake transaction and uses that transaction to recalculate the bank account balance. But the transaction, because it’s not real, never shows up on your bank statement. Fictitious checks understate your bank account balance, and fictitious deposits overstate your bank account balance.

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NOTE You wouldn’t knowingly or purposely enter a fictitious transaction in your register. But it’s surprisingly easy to do so. Fictitious transactions typically occur when you enter the withdrawal or deposit transaction in the Money account register but then forget to complete the paperwork necessary to actually make the withdrawal or deposit.

Unfortunately, there is not much you can do to find these sorts of errors. Mostly, you need to apply simple common sense to prevent them. In the case of forgotten uncleared transactions, your only recourse is to be careful in your record keeping. Try to establish a system whereby you regularly record the checks you write and the deposits you make. In the case of fictitious transactions, your only recourse is to make sure that you don’t record checks or deposits to your Money account register except when you are really writing a check or making a deposit. During the reconciliation process, you review a list of outstanding transactions. If you see extremely old outstanding transactions, it could mean something. Perhaps somebody hasn’t cashed the check, or perhaps the bank has lost a deposit you mailed. Extremely old outstanding transactions, however, could also be fictitious transactions.

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Chapter 4

USING MONEY’S REPOR TS AND CHAR TS REPORTS CHARTS

Questions Answered in This Chapter • How do I start using Money’s reports? • What kinds of reports does Money prepare? • How do I produce a report or chart? • How do I create a chart or graph? • How do I print a report or chart? • How long should I retain Money forms, reports, and charts? • How do I customize a Money report? • How do I undo my customization? The information you collect in the Microsoft Money 2001 account register about deposit and withdrawal transactions creates a rich financial database. You begin to really tap Money’s power when you use the information in this database to summarize and organize your financial affairs. The principle way you perform this summarization and organization is through Money’s reports and charts feature. Money’s reports and charts let you present the information you collect in a variety of helpful ways. You can then use this information to track your incoming expenses, your cash flow, monitor your net worth, and even use it for investment and small business record keeping. This chapter explains how to do all of these things.

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How do I start using Money’ Money’ss reports? Money’s reports and charts summarize and organize the information you collect using Money’s account registers. For this reason, you can’t use Money’s reports and charts until you have collected some financial data. Ideally, you need to collect at least a month’s worth of information. But it is even more valuable if you have collected several months or even a year or two of financial data in these account registers. The richer your data set, the more useful and interesting your charts and reports become. An obvious but related point is this: The better the information set you collect using Money’s account registers, the better your reports and charts become. Obviously, accuracy counts. For this reason you want to be careful about entering payee names, amounts, transaction dates, categories, and even memos. You also want to enter as detailed a description of each transaction as you can and as is reasonable. For example, use income and expense categories when you record transactions, use full and complete payee names, and you may even want to use good memo descriptions. As you work with Money’s reports and charts, you are going to find that the richer, the better, the more detailed the data you collect, the more interesting ways you will have to summarize and organize your report data.

What kinds of reports does Money prepare? Money prepares reports that fall into five distinct categories. If you take a look at Figure 4-1, for example, you see Money’s Pick A Report Or Chart window. Along the left edge of this window, Money lists seven report options: Spending Habits, What I Have, What I Owe, Investments, Taxes, Monthly Reports, and My Favorites. The first five items in this list represent the five basic report categories Money provides.

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Figure 4-1

The Pick A Report Or Chart window.

The sixth report category, Monthly Reports, is a special summary of your financial affairs prepared at the end of each month. This category includes a variety of financial information, including data about your spending, your net worth, advice the Money program has provided over the month, investment profits, and potential financial problems. In essence, it represents an amalgamation of data from other report categories. The seventh category, My Favorites, isn’t really a reporting category. It simply lists reports that you have identified as “favorites.” You add reports to your My Favorites list by first displaying the report and then choosing the Favorites menu’s Add To Favorites command. Within each of the five main report categories, Money provides a series of reports. Often, Money provides between a half a dozen and a dozen reports. Figure 4-1, for example, shows the reports that Money provides in the Spending Habits category. Table 4-1 lists and describes the Spending Habits reports. Table 4-2 lists and describes the What I Have reports. Table 4-3 lists and describes the What I Owe reports. Table 4-4 lists and describes the Investments reports. Table 4-5 lists and describes the Taxes reports. NOTE The Investments reports will make more sense if you first review the investment questions and answers discussed in Chapters 10 and 11. Similarly, the Taxes reports will make more sense if you first review the questions and answers in Chapter 14.

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REPOR T NAME REPORT

REPOR T DESCRIPTION REPORT

Where the Money Goes

Summarizes how you spend your money using your expense categories.

Who is Getting My Money

Summarizes your spending using payee names.

Monthly Cash Flow

Summarizes your monthly income and expenses using your categories.

Category Spending

Reports all transactions you have recorded in any individual category.

Payee Spending

Shows the payments made to or the payments received from a specific payee.

Accounts Transactions

Lists and summarizes transactions in an account.

Income vs. Spending

Compares your total income to your total spending, showing whether your account balances are growing or decreasing.

How I’m Doing on My Budget

Shows how closely you are following your budget.

This Year’s Budget

Compares your spending to the budget you created.

Table 4-1

REPOR T NAME REPORT

REPOR T DESCRIPTION REPORT

Net Worth

Shows your account balances at a specific point in time.

Net Worth over Time

Shows your net worth over a period of time, thereby showing any trends in your net worth.

Account Balances

Shows your account balances at a specific point in time.

Account Balance History

Shows the balance of an account over a period of time in a line graph.

Account Details

Lists your accounts, along with their opening balances, current balances, and other account information.

Frequent Flyer Miles

Shows all your frequent flyer miles in one report.

Table 4-2

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The Spending Habits reports.

The What I Have reports.

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REPOR T NAME REPORT

REPOR T DESCRIPTION REPORT

Upcoming Bills

Lists your recurring expenses.

Upcoming Bills and Deposits This Month

Lists the deposit transactions and withdrawals you will probably record this month.

Credit Card Debt

Shows the amounts owed on each of your credit card accounts.

Loan Terms

Lists and describes any of the loan accounts you set up.

Loan Amortization

Shows how much of a specific loan’s payments go toward the principal and toward the interest.

Table 4-3

The What I Owe reports.

REPOR T NAME REPORT

REPOR T DESCRIPTION REPORT

Portfolio Value by Investment Account

Shows capital gains and losses on your investments that you would incur if you sold the investments.

Portfolio Value by Investment Type

Summarizes your investments by investment type.

Performance by Investment Account

Shows the rates of return that different investment accounts are generating.

Performance by Investment Type

Shows the rates of returns that different investment types are generating.

Price History

Lists the prices you have recorded for specific investments.

Investment Transactions

Lists the transactions you have recorded for a specific investment account.

Review Your Assets Allocation

Shows how your investment portfolio is split up by investment type, thereby indicating the level of diversification you have.

Bonds Summary

Lists the details of any bond investments.

Bond Performance

Calculates the rates of return on bond investments that you have made.

Table 4-4

The Investments reports.

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REPOR T NAME REPORT

REPOR T DESCRIPTION REPORT

Tax-Related Transactions

Lists transactions that use categories you have marked (or Money has marked) as being tax-related.

Capital Gains

Shows the actual, realized capital gains or capital losses you incurred by selling investments over the year.

Loan Interest

Shows the total interest you have paid on any loans.

Tax Software Report

Summarizes your tax-related transactions so that you can export this information to a tax preparation software program.

Table 4-5

The Taxes reports.

How do I produce a report or chart? The steps for producing a Money report or chart are very simple. In a nutshell, you just select the report you want and identify the range of transaction dates that should be included in the report. To produce a report or chart, take the following steps: 1. Display the Pick A Report Or Chart window. You use the Pick A Report Or Chart window both to select the report category you want and the specific report you want (see Figure 4-2). To display this window, click the Reports link and then select Reports Gallery.

Figure 4-2

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The Pick A Report Or Chart window.

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2. Select the report category and then the report. Use the Pick A Report Or Chart window to select both the report category and then the report. To select a report category, click one of the categories listed along the left edge of the screen. To select a specific report or chart, simply click it in the main area of the Pick A Report Or Chart window. In Figure 4-2, the Spending Habits report category is selected and the Monthly Cash Flow report is selected. 3. Select an appropriate date range. You create a report using a specific range of transaction dates. For example, you might want to summarize income and expense data for the month of December, and in this case, you need to specify a date range as running from December 1 through December 31. To make a date range specification, click the Date Range box’s button and then select one of the predefined date ranges. If none of the predefined dates work, select Custom Dates from the Date Range box. Money displays the Custom Report dialog box, as shown in Figure 4-3. You can use its From and To boxes to specify the first transaction date and the last transaction date you want included on your report.

Figure 4-3

The Date tab of the Customize Report dialog box.

NOTE The From and To boxes work the same way as the date boxes in the account register. You can enter dates directly in these boxes using the mm/dd/yy date format, or you can click the boxes’ buttons to display a pop-up calendar that you can use to select a date.

4. Produce the report or chart. To produce the report or chart using the specified date range, click the Go To Report/Chart button. Money produces the specified report using the specified date range. Figure 4-4, for example, shows a Monthly Cash Flow report using the date range January 1 through March 31. Using Money’s Reports and Charts

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Figure 4-4

The Monthly Cash Flow report.

NOTE Predictably, the reports look slightly different from one another. Also, some of the entries listed in the Pick A Report Or Chart window are not actually tabular reports, but graphs or charts.

How do I create a chart or graph? Many of the reports that Money produces can also be shown in a chart or graph format. Sometimes, Money will by default produce a graphical version of a report. However, you can also create a graphical version of a report—a chart, in other words— by using the chart buttons, which appear in the bottom left corner of any report. Figure 4-5 shows the Where The Money Goes report. In the lower left corner of the report are buttons that resemble charts and graphs. For example, the button that is second from the left shows a bar chart. The button that is third from the left shows a line chart. The button that is fourth from the left shows a pie chart.

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Figure 4-5

The Where The Money Goes report.

You can use these buttons to regenerate a report as a graph. Predictably, the bar chart button produces the equivalent bar chart version of a report. The line chart button produces the line chart version of a report, and the pie chart button produces the pie chart version of a report. Figure 4-6 shows the pie chart version of the Where The Money Goes report.

Figure 4-6

The Where The Money Goes chart.

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NOTE The far left button in the lower left corner of the report window is the Report button. Click it to regenerate the Money report into the traditional tabular report format.

How do I print a report or chart? You can print the report or chart shown in the Money Chart Or Report window simply by choosing the File menu’s Print command. Money then displays either the Print Report dialog box, as shown in Figure 4-7 or the Print Chart dialog box, as shown in Figure 4-8. To print the report or chart, use the dialog box to indicate how many copies of the report you want and at what print quality you want the reports produced. Then click the OK button.

Figure 4-7

The Print Report dialog box.

Figure 4-8

The Print Chart dialog box.

NOTE If you are printing a report, Money also allows you to specify whether you want to print all the pages or only a range of pages.

After you click the OK button, Money sends a copy of the report to your printer and directs your printer to produce the report.

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How long should I retain Money forms, reports, and charts? Table 4-6 lists the typical suggestions for retaining bookkeeping and financial documents. These guidelines are pretty conservative. They probably overstate the time you should hold on to your financial records. DOCUMENT

SUGGESTED RETENTION RULE

Asset Purchase Documents

Retain any records of an asset purchase—this might include the invoice, closing documents, or confirmation notice—until seven years after the asset is sold or retired.

Backup Copies of the Money Data Files

Retain good backup copies of the Money data files for one year after they are made.

Canceled Checks

Retain any canceled checks permanently. You typically would have little occasion to use them after the statute of limitations for federal and state income tax forms expire—this is three years in the case of non-criminal investigations and seven years in the case of criminal investigations—but you won’t accumulate that many check forms even if you follow the permanent retention rule.

Check Registers

Retain paper copies of the Money account registers permanently, too.

Monthly Reports

Keep any monthly reports for three years after you file any tax return that uses the data from the report.

Yearly Reports

Keep any yearly reports until seven years after the date on which you filed a return that uses the data from the report.

Other Reports

There is no specific tax reason why you should retain other reports if you’re keeping copies of the monthly and yearly reports.

Graphs and Charts

There is no requirement to retain financial reports or charts. The lack of precision in a graph or chart means that it’s unlikely you would use such a document to prove a tax deduction or financial reporting amount.

Table 4-6

Suggestions for retaining financial records and forms.

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How do I customize a Money report? At the bottom of any report or chart window, Money provides a Customize button. If you click this button once you have produced the report or chart, Money displays a Customize Report dialog box. Figure 4-9 shows one example of the Customize Report dialog box. This dialog box provides ten tabs with each tab corresponding to a type of customization you can make to a report or chart. In order to provide you with information about the various customization options you have, we briefly describe each of these tabs in the following paragraphs.

Figure 4-9

The Account tab of the Customize Report dialog box.

Using the Account T ab Tab If you click the Account tab, Money displays options that let you choose which accounts should appear on the report (see Figure 4-9). If you want all the accounts you track in Money to have their data included on the report, for example, click the Select All button. If you want only those accounts that are “open,” click the All Open Accounts button. If you want to select only a subset of accounts for the report, first click the Clear All button to unmark each of the accounts on the list shown. Then click the individual accounts you want to appear. When you click an account, Money places a check in a box in front of the account name. Only those accounts whose boxes are checked will appear on the report. NOTE To close an account, click the Accounts link so that Money displays the Pick An Account To Use window. Then right-click the account you want to use, and choose See Account Details from the submenu. When Money displays the Account Details window, select the This Account Has Been Closed check box.

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The Show Closed Accounts box lets you control whether the list of accounts shown on the Account tab includes only open accounts or both open and closed accounts. If the Show Closed Accounts box is checked, then Money shows any closed accounts. Otherwise, Money shows only open accounts.

Using the Amount T ab Tab The Amount tab lets you select transactions for a report based on the transaction amount (see Figure 4-10). To include only transactions that equal a specific amount, select the Search On This Amount option button and then enter the amount in the Search On This Amount text box. To include transactions that fall into a range of amounts, select the Search On This Range option button and then use the From and To boxes to provide the range of values. All of the text boxes on the Amount tab provide buttons that you can click to display a pop-up calculator that you can use to calculate an amount in the field.

Figure 4-10 The Amount tab of the Customize Report dialog box.

NOTE If you don’t enter values in the text boxes shown in the Amount tab, Money does not include or exclude transactions using amount information.

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Using the Category T ab Tab The Category tab lets you select transactions for inclusion based on the income or expense category recorded for a transaction (see Figure 4-11). To include all transactions regardless of the category used, click the Select All button. To include only those transactions that use income categories, click the Select Income Categories button. To include only expense categories, click the Select Expense Categories button. To include only those categories that have been marked as tax related, click the Select Tax Categories button.

Figure 4-11 The Category tab of the Customize Report dialog box.

To use a smaller subset of categories, click the Clear All button and then select the categories you want to appear on your report by clicking them in the list box of categories. When you click a category, Money places a check in the box next to the category name. The Category tab also provides several other check boxes you can use to deal with special cases. Selecting the Show Subcategories check box tells Money that you also want subcategories to be listed. Selecting the Include Unassigned Income Transactions check box and the Include Unassigned Expense Transactions check box tell Money to include income transactions and expense transactions that were not assigned to a category.

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Using the Chart T ab Tab The Chart tab provides a series of option buttons you can use to customize the appearance of a chart (see Figure 4-12). The View As option buttons, for example, let you specify whether the information shown in the window should appear as a report, a line chart, a pie chart, or a bar chart. The Pie Labels option buttons, which are available only for pie charts, let you specify whether Money should display percentages or dollar amounts next to the slices it creates. Beneath these two sets of option buttons, Money displays check boxes that let you indicate whether it should show a three-dimensional version of the chart and whether or not Money should include gridlines. The Show Legend box lets you select the location for the chart legend.

Figure 4-12 The Chart tab of the Customize Report dialog box.

Using the Date T ab Tab The Date tab lets you specify which range of dates the report should include (see Figure 4-13). You can select a predefined date range using the Range list box. Or you can use the From and To boxes to enter specific dates. Click the From and To boxes’ buttons to display a pop-up calendar that you can use to enter a date in the field.

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Figure 4-13 The Date tab of the Customize Report dialog box.

Using the Details T ab Tab The Details tab lets you select transactions that should be included on a report according to the type of transaction (see Figure 4-14). The Type list box lets you choose which types of transactions should appear on the report: payments, deposits, unprinted checks, unsent direct bill payments, transfers, or all types of transactions. The Status list box lets you select reconciled, unreconciled, or both reconciled and unreconciled transactions for your report. Finally, the Find This Check Number button and box and Find This Range button and text boxes let you select only a specific check or range of checks for inclusion on your report.

Figure 4-14 The Details tab of the Customize Report dialog box.

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Using the Fonts T ab Tab The Fonts tab provides options you can use to control the appearance of the reports that Money produces (see Figure 4-15). You can use the Font box to select the font used for a report. The Size box lets you select the point size for the report’s text.

Figure 4-15 The Fonts tab of the Customize Report dialog box.

NOTE You can experiment with the Font and Size boxes and see what your selections look like by looking at the sample area of the tab.

The Report Column Widths box lets you control how Money sizes the report columns. Typically, you want the report column width set to automatic so that the report columns are wide enough for the information they contain. The Report Column Widths list box, however, also provides other column sizing options, including narrow, standard, wide, and extra wide.

Using the Rows & Columns T ab Tab The Rows & Columns tab lets you specify how Money arranges report information into rows and columns (see Figure 4-16). The Rows list box lets you specify what information Money shows in its rows. By default, Money typically uses rows to show category-level information.

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Figure 4-16 The Rows & Columns tab of the Customize Report dialog box.

The Columns list box lets you specify how Money should use the columns of the report. Many Money reports use only a single column. However, some reports that show how your income and expenses change over time use different columns for different months or different years. The Report & Columns tab also provides three other options. The Sort By Amount check box lets you tell Money to sort report rows in descending amount order. (Typically, Money sorts rows alphabetically using the category name.) The Include Abbreviations check box lets you include abbreviations. The Combine All Values Under % Of Total box lets you tell Money to combine row-level information into a single value when the information would otherwise be immaterial. (To use this option, simply enter the percentage that is insignificant in the box.)

Using the Payee T ab Tab The Payee tab lets you specify which payees should appear on the report (see Figure 4-17). If you want all transactions to appear in the report, click the Select All button. If you want only certain payee transactions to be included in the report, click the Clear All button. Then select each of the payees that you want to include using the list box that appears on the tab. As you click a payee name, Money checks the box next to it.

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Figure 4-17 The Payee tab of the Customize Report dialog box.

NOTE Beneath the list box of payees, Money also provides an Include Transactions With No Payee In Search check box. Select this box to tell Money that it should include those transactions where no payee name is recorded.

Using the T ext T ab Text Tab The Text tab lets you specify that you want a report that includes only those transactions that use a specific string of text (see Figure 4-18). This is a very useful feature. For example, if you want a complete report that lists any transaction having anything to do with a charitable contribution, you might specify that you want any transaction that includes the word charity. By specifying this text using the Text tab, Money would include in its report any transaction that used the word charity in the payee name, the category name, or the memo description.

Figure 4-18 The Text tab of the Customize Report dialog box. Using Money’s Reports and Charts

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How do I undo my customization? If you want to return to Money’s default report settings, all you need to do is display the Customize Report dialog box and then click its Reset button. Money then returns the Customize Report dialog box’s options back to their original settings.

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Chapter 5

MANAGING THE MONEY DA TA FILES DAT

Questions Answered in This Chapter • Where does Money store my financial records? • How do I password-protect my Money data file? • How do I back up the Money data file? • How often should I back up? • How do I restore the Money data file? • How do I create a new Money data file? • Why would I create a second Money data file? • How do I switch between Money data files? • How do I convert a Quicken file to the Money data file format? • How do I import a Quicken or .qif file? • How do I export to the .qif data format? • How do I delete the Money data file? Microsoft Money 2001 stores the information you collect in an account register in a file stored on your computer’s hard disk. For the most part, you don’t need to worry about this file. The Money program takes care of saving this file when you make changes to it—such as when you enter a transaction in a register. What’s more, the file operations of backing up are handled automatically through prompts Money provides using dialog boxes. Nevertheless, there are a handful of situations in which knowing a bit more about these files and how to work with them will come in handy. 69

Where does Money store my financial records? As mentioned earlier, the information you collect by recording transactions in Money account registers gets stored in a data file. This data file is typically located on your hard disk. You can also store the Money data file on a floppy disk, if the floppy disk is large enough. You might also, if your computer connects to a network, choose to store the Money data files on a network drive located on some other computer. NOTE You choose where you want the Money data file located when you install the Money software. If you don’t remember choosing the location—and you probably don’t—it means you just accepted Money’s default suggestion, which is on the principal hard drive of your computer.

The Money program typically names the Money data file. The default name is usually “My Money.” If you create multiple Money data files, Money names them “My Money,” “My Money 2,” “My Money 3,” and so on. Money also creates automatic backup copies of the Money data file and stores these automatic backup copies on your hard drive. These backup files are clearly labeled as such, for example, the backup file for a regular file named “My Money” would be named “My Money Backup.” The Money files and Money backup files are stored by default in the My Documents folder. The My Documents folder resides on your principal hard drive—probably your C drive. You can tell that a data file is used by Money because Microsoft Windows uses an uppercase M icon to represent the file (see Figure 5-1). If you have told Windows you want to see file extensions, you can also identify Money data files by looking for the .mny file extension. For example, a Money data file that is named My Money—this is the default—will appear in file lists as My Money.mny.

Figure 5-1

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Windows uses an uppercase M icon and the .mny file extension to identify the Money data file.

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WARNING Because the Money data file is from just another file, you can cut, copy, and paste the Money data file in the same way that you can cut, copy, and paste in other files. However, you don’t want to perform these sorts of file operations on the Money data file. Leave the data file alone; make changes to the Money data file only through the Money program.

One other point about the Money data file: The file is large. Even before you begin entering transactions, the file will be 2 megabytes in size, which means that from the start, the file doesn’t fit on a floppy disk. Then, obviously, as you enter transactions, the file grows. NOTE Because it’s handy to store several years’ worth of transactions in the same Money data file, you may want to consider getting some high-capacity or largecapacity removable floppy disks to use for backup copies of the Money data file. For example, a zip drive holds roughly 100 megabytes of information. This means that almost no matter how complicated or voluminous your financial records are, you would always be able to store your entire Money data file on a single high-capacity zip disk.

How do I password-protect my Money data file? You can add a password to the Money data file. By adding a password, only someone who supplies the password can open the data file, see account data, and enter new transactions. To add a password to the existing Money data file, choose the File menu’s Password command. Money displays the New Password dialog box, as shown in Figure 5-2. To enter a password or create a password for the data file, simply type the password you want to use in the New Password text box, and then click the OK button. Money asks you to confirm the new password by entering the password a second time. You need to do this, and then click the OK button a second time. At this point, the file is password-protected. The next time Money attempts to open this file, Money requests the password. If you can supply the password, Money will open the file. If you can’t supply the password, Money will not open the file.

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Figure 5-2

The New Password dialog box.

Let’s state the obvious warning about the use of a password. A password becomes a key you use to unlock the Money data file. As long as you have the key, you will be able to unlock the data. If you lose the key, however, you lose the ability to unlock the data file. This means you need to remember the password for the Money data file. You also need to make sure that you are not the only one who has the password. If something happens to you, somebody else will need the password to get into your Money data file. Frequently, it doesn’t make sense to use a password to secure the Money data file. In most cases, it might be more reasonable to use other measures to try to secure the privacy of your Money data file. This might mean that you use Money on your computer at home in a room you can easily watch—like your bedroom or den. Or, alternatively, maybe it means you store the Money data file on a removable disk that you can lock up. You may also decide that you don’t even need to worry about the privacy of your Money data. You may decide, for example, that your Money data files shouldn’t receive any different treatment than what you use to protect the privacy of the bills you receive or your tax return. Most likely you store this information in a kitchen drawer or an unlocked desk. If that’s the case, it might not make sense to spend too much extra effort trying to lock up the Money data files.

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How do I back up the Money data file? You can back up your Money data file in two ways. First, you can wait until the Money program prompts you to back up the file, which Money does using the dialog box shown in Figure 5-3. To back up the Money data file in this way, simply click the Back Up Now button. Money backs up the data file to your floppy drive.

Figure 5-3

The Backup To Floppy dialog box.

NOTE The Backup To Floppy dialog box provides an Options button. Click this button to display a dialog box of buttons and boxes you use to describe how Money backs up your data file and when Money reminds you to back up your data file.

Second, you can back up using the File menu’s Back Up command. When you choose this command, Money displays the Backup dialog box (see Figure 5-4). Click an option button to indicate which backup location you want—a floppy drive or your hard drive—and, if necessary, select a specific drive from the list boxes. Then click the OK button.

Figure 5-4

The Backup dialog box.

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How often should I back up? You don’t need to back up your Money data file every time you use Money. Money suggests, for example, that you back up every fourteen days. And that’s a good rule of thumb. If you enter numerous transactions every day, you might want to back up more regularly than this—perhaps weekly. If you enter only a few transactions a month, you could probably safely back up every other month. Essentially, you want to estimate the amount of work it would take to reenter all of the transactions recorded since the last backup and compare this to the work of regularly backing up. The less work it is to reenter transactions, the longer you can go between backups without risking too much.

How do I restore the Money data file? If you lose the original Money data file or the file becomes corrupted in some way, you can restore the file to its condition when you last backed up. To do this, take the following steps: 1. Tell Money you want to restore a file. Choose the File menu’s Restore To Backup command. Money displays the Restore Confirmation dialog box (see Figure 5-5).

Figure 5-5

The Restore Confirmation dialog box.

2. Pick the backup file. Click the Restore From A Backup File option button, and then click the Next button. Money asks which backup copy of the file you want to use for the restoration (see Figure 5-6). If the file described as the default backup file is correct, click the Restore From Default Backup File option button and then click the Restore button. Otherwise, click the Open A Different Backup File option button, identify the backup file you want to restore, and then click the Restore button.

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Figure 5-6

The Restore Backup dialog box.

3. Reenter any new information. After you’ve restored the Money data file using the most recent backup copy of the file, you need to reenter any transactions missing from the backup file. In other words, if you last backed up the Money data file on Monday and you entered transactions on Tuesday, you need to reenter Tuesday’s transactions.

How do I create a new Money data file? To create a new Money data file, choose the File menu’s New command and then choose New File from the submenu. When Money displays the New dialog box, use its Save In box to specify the folder location and its File Name box to specify the name for the new file (see Figure 5-7). After you have provided this information, click the OK button and Money creates the new data file.

Figure 5-7

The New dialog box.

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NOTE The Save In box works like the Save In box in other Microsoft programs. Click the box’s button to display a list of the folders you can use for saving the Money file. The File Name box works like a regular text box. You simply enter the name that you want to use for the data file in this box.

After Money creates the data file, it opens the data file and then starts the Setup Assistant. The Setup Assistant, as you may remember from Chapter 1, helps you create accounts, build a list of recurring bills, and identify important financial objective issues. If you have questions about how to do this, refer to Chapter 1 for the answer to the question, “How do I run the Money Setup Assistant?”

Why would I create a second Money data file? You create a second data file to segregate financial records. For example, you can actually use Money for more than one person. However, you would probably want to use a separate data file to keep both your sets of records separate and perhaps private. To do this, each individual should use a separate data file. Perhaps you run a small business and are using Money for your record keeping. By using a separate data file for the business, you segregate the business’s financial records from your personal financial records.

How do I switch between Money data files? You can switch between files by choosing commands from the File menu. If you have a small number of files, perhaps only two or three, the File menu will actually list and number all the Money data files you have created. Therefore, in this special case, to switch to another data file, all you need to do is choose the data file from the list at the bottom of the File menu (see Figure 5-8). The numbered commands at the bottom of the File menu—just above the Exit command—are actually Money data files. To open, or switch, to one of these data files, click it.

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Figure 5-8

The File menu lists and numbers recently used Money data files.

If you want to open a Money data file that isn’t listed on the File menu, choose the File menu’s Open command. When Money displays the Open dialog box, use the Look In box to identify the folder location of the file (see Figure 5-9). After you have selected the correct folder location, the area beneath the Look In box lists the Money files in the folder. To open a file, double-click it.

Figure 5-9

The Open dialog box.

NOTE Money lets you have only one data file open at a time. This means that when you open a new data file, Money also closes the old data file.

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How do I convert a Quicken file to the Money data file format? When you install the Money software, the Installation Wizard looks for any Quicken data files on your computer. It should find one, if it exists. And if it does find a Quicken data file, the Installation Wizard suggests you convert this Quicken file to a Money data file. Assuming you agree with Money’s suggestion, Money does the conversion automatically. You don’t have to worry about a thing. If for some reason you choose not to accept Money’s suggestion, or perhaps you installed Money on a computer where Money wasn’t able to find a Quicken data file, you can use the File menu’s Convert Quicken File command to convert the Quicken data file to the Money data file. To perform this operation, choose the File menu’s Convert Quicken File command. When Money displays the Convert Quicken File dialog box, use its Look In box to identify the folder holding the Quicken file you want to convert (see Figure 5-10). When Money lists the files in the selected folder, double-click the file you want to convert.

Figure 5-10 The Convert Quicken File dialog box.

The Convert Quicken File command converts Quicken files in the .qdb, .qdg, or .qdf file formats. These file formats are native Quicken file formats. In other words, these file formats—actually file extensions—are those used by Quicken files on a regular,

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day-to-day basis. If you want to convert a Quicken data file that’s been stored in the Quicken interchange format—this is a file that uses the .qif-file-format file extension— you need to use the File menu’s Import command. WARNING The .qif file format is a special file format that Intuit created for Quicken to make it easier for Quicken users to share data with other programs. In our experience, the .qif format is not all that successful as a way to move data between programs. We aren’t sure whether this is because Quicken has trouble writing .qif files or because other programs, including Money, have trouble reading .qif files. In any event, we caution you against using this file format.

How do I import a Quicken or .qif file? You can import both Quicken and .qif files using the File menu’s Import command. When you choose the command, Money displays the Import dialog box (see Figure 5-11). Use the Look In box to identify the folder location of the file you want to import. After you select it, Money lists the files in the folder in the area beneath the Look In box. To import the file, simply double-click it.

Figure 5-11 The Import dialog box.

After you import the file—this essentially means you create a new copy of the file that Money can understand—using the old Quicken or .qif file, you can work with the file in the usual way.

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How do I export to the .qif data format? You can create a .qif file using the Money data file. You would do this presumably in one situation: You want to move data from Money to Quicken, and to do so you need to take your Money data file, convert it to a .qif file, and then import this file into the Quicken program. To perform such an export operation, take the following steps: 1. Open the Money data file you want to export. Probably the Money data file that you want to export is already open. If it isn’t, use the File menu to open it. 2. Tell Money you want to export the file’s information. Choose the File menu’s Export command. Money displays the first Export dialog box, as shown in Figure 5-12. This dialog box asks whether you want Loose QIF format or Strict QIF format. In general, you need to use the Strict QIF format. Only the Money program understands the Loose QIF format.

Figure 5-12 The first Export dialog box.

3. Pick a name and location for the new file. After you identify which of these two .qif files you want to use, click the OK button. When you do this, Money displays the second Export dialog box (see Figure 5-13). Select the folder location you want for the to-be-exported file using the Save In box. Use the File Name box to name the file. The file extension needs to be .qif, but you don’t have to supply the file extension. Money supplies it automatically.

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Figure 5-13 The second Export dialog box.

4. Select the accounts you want to export. After you have named the file, click the OK button. Money then displays a third Export dialog box. Money uses this dialog box to ask which accounts you want to export: regular accounts, which include bank, credit card, cash, and liability accounts; or investment accounts, which include only investment accounts. Indicate which collection of accounts you want to export by clicking either the Regular or Investment option button, and then click the OK button. Money next displays a list of accounts in the selected categories. Select the accounts you want by clicking them— when you click an account, Money highlights it to identify the selected account— and then click the Continue button. Money then exports the transactions in the selected accounts, and that’s it. NOTE There are numerous reasons why you shouldn’t collect tax-deduction data by exporting information from the Money data file to your tax software. This topic is discussed in Chapter 14.

How do I delete the Money data file? You can delete the Money data file, although not from within the Money program. To delete a Money data file, you use either the My Computer window or the Windows Explorer program. Before we explain the steps for doing this, however, let’s point out that you would never do this except in the very special circumstance in which you truly did want to destroy the Money data file. For example, you might want to delete a Money data file if you used the data file to learn the program and then didn’t want it cluttering your hard disk. Or perhaps, you might want to delete a Money data file if you used to use Money but now use Quicken and you have already exported the Money data file to Quicken.

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Assuming that you do want to delete the Money data file, take the following steps: 1. Display the My Computer window, or start the Windows Explorer program. To display the My Computer window, simply double-click the My Computer icon, which appears on the Windows desktop. To start the Windows Explorer program, click the Start button, choose Programs, and then choose Windows Explorer. 2. Find the folder with the Money data file you want to delete. If you use the My Computer window to delete a Money data file, first select the disk with the Money data file and then select the folder with the Money data file. To do this, double-click the disk, which will appear in the My Computer window, and then select the folder. If you stored the Money data file in a subfolder—a folder within a folder—you will need to continue this process, selecting the folder within the folder. If you use the Windows Explorer program to delete a Money file, you follow essentially the same process. Use the list of folders, which appears on the left side of the Windows Explorer window, to identify the folder holding the Money data file. After you have done this, Windows lists the folders and the files in the selected folder in the right pane of the Windows Explorer window. Scroll through this list until you find the Money data file—make sure it’s the right Money data file—and then select it. 3. Confirm that the Money data file you have located and selected is the correct one. Obviously, you need to make sure the Money data file you are about to delete is the correct one. Note that this confirmation step is important because you might not be familiar with the names that Money uses for its various data files. Make sure that you really are deleting the Money file you don’t need—not the Money file you want to use in the future. 4. Delete the Money data file. To delete the selected Money data file, choose the File menu’s Delete command. When Windows asks you to confirm your deletion using the Confirm File Delete message box, click the Yes button. Windows then deletes the Money data file you have selected. NOTE Windows moves the files you delete from their original folder location to a new folder named the Recycle Bin. Eventually, deleted files are removed from the Recycle Bin; however, up until that time you can retrieve a deleted file by moving it out of the Recycle Bin back to its original location. For more information about how to do this, refer to your Windows documentation. 82

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Chapter 6

CUSTOMIZING MONEY

Questions Answered in This Chapter • How do I change the Money window? • How can I control the way Money backs up its data files? • How do I control the way Money handles any online services? • How do I control how Money’s Internet connection works? • How do I change the way Money handles data entry and data editing? • How do I change Money’s investment record keeping procedures? • How do I change the Money Planner’s assumptions about extraordinary financial events? • How do I customize the list of currencies that Money uses? • How do I change the way Money handles recurring bills and deposits? • How do I make changes to categories ? • How do I customize the way Money prints checks? • How do I change the way reports print? • How do I change the way a printer prints checks?

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You can customize the way that the Microsoft Money 2001 program works. For example, you can control how Money prints check forms and reports and how Money’s windows look and work. You can also control with varying degrees of specificity how Money’s tools work. For example, you can tell Money how you want it to perform investment record keeping, how Money should make certain financial calculations, and how you want to deal with multiple currencies. This chapter describes how you make all of these customizations.

How do I change the Money window? You can make changes to the Money program window by choosing the Tool’s menu Options command, clicking its General tab, and then using the buttons and boxes of the General tab. Figure 6-1 shows the General tab of the Options dialog box.

Figure 6-1

The General tab of the Options dialog box.

Setting Display Options The Display box presents you with several options. The Start Money With This Page Open box lets you tell Money what it should display in its first window. Initially, Money assumes that you want to see the Money home page. You can, however, pick several other options. For example, you can choose to display an account register, a list of accounts, a list of your upcoming bills, and several other sets of information as well.

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Beneath the Start Money With This Page Open box, Money provides three other check boxes that let you control information that appears on the Money home page (and several other places as well). For example, the Display Charts Using Patterns box allows you to control whether Money uses colors or patterns to show the data markers in charts. The Print Charts Using Black & White Patterns box allows you to specify how Money should print its charts. The Turn Off Sponsorship And Shopping Links box allows you to tell Money that you don’t want hyperlinks to advertisers appearing in the Money window.

Setting Color Schemes Options The Color Schemes box lets you choose a color palette for the Money windows. If you click the Color Schemes box’s button, Money displays a list of color scheme options. If you want to make this change, your best bet is just to experiment with the different color schemes.

Setting Calendar Options The Calendar box lets you tell Money the weekday on which your weeks start. The initial setting is Sunday. You can easily change this to some other day by using the Week Starts On box.

Setting Sounds Options The Sounds box also has several options you can set. The Play Sounds check box lets you tell Money whether you want it to play sounds, obviously. If you work where it is important to be quiet, clear this check box to turn off the playing of sounds. Clicking the Change Sounds button displays the Windows Sounds Property dialog box. You can use this dialog box to specify what sounds Money—or another program— plays when certain actions occur. For example, you can use the Windows Sounds Property dialog box to specify the sound that Microsoft Windows makes when you close a program. As you no doubt noticed during your work, Money plays audio help files as you use the program. In general, what Money does is play audio help files the first few times you work with a feature window or dialog box, and then the program stops playing the audio files. If you want to reset this feature, click the Reset Audio Help button. You might want to do this if it has been a while since you have used Money, or if you are new to Money but someone else has already been using the copy of Money you are now using. Customizing Money

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Setting Advisor FYI Options In the Advisor FYI section of the Money home page, Money displays a Customize link. Clicking the Advisor FYI link displays a dialog box that lets you choose which information appears in the Advisor FYI section of the Money home page (see Figure 6-2.) The options on these five dialog box tabs (Choose Advisor FYI, Account Balances, Monthly Spending, Important Dates, and Investment Prices) are selfexplanatory or can easily be learned by simple exploration.

Figure 6-2

The Advisor FYI Options dialog box.

How can I control the way Money backs up its data files? Money’s file backup and restoration processes, which are described in Chapter 5 in more detail, can be customized. To make changes to the way the backup or restoration processes work, choose the Tool menu’s Options command and then click the Backup tab in the Options dialog box (see Figure 6-3).

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Figure 6-3

The Back Up tab of the Options dialog box.

Setting the Hard Disk Backup Options The most important setting on the Backup tab of the Options dialog box is the Automatically Back Up File To Hard Disk On Exit check box. If this check box is selected—and it is by default—Money automatically makes a backup copy of your data file, saving the file to your hard disk when you exit the Money program. The file is saved in the location shown in the Save In dialog box. Although the default settings for the way in which Money’s automatic file backup operation works are probably fine—don’t make changes unless you have some other way to back up the file—you can choose to not automatically back up the file, and you can change where Money automatically backs up the file. If you don’t want Money to automatically back up the data file, simply clear the Automatically Back Up File To Hard Disk On Exit check box. If you want to change the location that Money uses to store the automatic backup file, replace the folder location shown in the Save In box. (If you don’t know how to enter a pathname using characters such as the drive letter, colon, and slash, click the Browse button and then use the Browse box to select a folder location.)

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You can also use the Prompt Me Before Backing Up Each Time check box and the Make My File Small (Compress It) On Both Manual And Automatic Backup check box to control or fine-tune the way in which Money backs up the file. The former check box lets you specify that Money should prompt you before it actually performs an automatic file backup operation. The latter check box lets you tell Money it should attempt to compress the file’s contents on both manual and automatic backups so that the file takes up less space.

Setting the Floppy Backup Options The Automatically Back Up To Floppy Every X Days check box and text box let you specify that Money should, without your intervention, automatically back up to a floppy disk at some regular interval. Select the check box to have Money automatically back up. Enter the backup interval in the text box. Money also provides a Save In box that you can use to specify which floppy disk Money will use for these automatic backups. To compress the file, select the Make My File Small (Compress It) On Both Manual And Automatic Backup check box. NOTE How you actually back up and restore the Money data file is described in Chapter 5.

How do I control the way Money handles any online services? You can specify how Money downloads statements from any financial institutions you are using for online services. To do this, choose the Tools menu’s Options command. When Money displays the Options dialog box, click the Online Services tab (see Figure 6-4).

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Figure 6-4

The Online Services tab of the Options dialog box.

The Downloading Statements check boxes let you specify two settings. The first check box lets you indicate that you want to add a description to the memo field for any downloaded transactions that include a description from the financial institution. This is self-explanatory. The other check box, if selected, tells Money that when it downloads transactions from a financial institution, it should compare those downloaded transactions to transactions you have already entered in the account register. Leave this check box selected. You do want Money to look for transactions in your account register first. In this way, Money won’t, as a result of downloading an online bank statement, reenter a transaction. If you tell Money to look for matching transactions, however, you need to specify how far back Money should look. The Match Transactions Within A X Day Range text box lets you make this specification. Money also includes an Online Registration check box. If selected, this check box tells Money to remind you to register when the Money program starts. If you don’t want to be reminded to register, simply clear this check box.

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How do I control how Money’ Money’ss Internet connection works? You can control which types of information Money retrieves using the Internet and how Money connects to the Internet. To exercise this type of control, choose the Tools menu’s Options command. When Money displays the Options dialog box, click the Connection tab (see Figure 6-5).

Figure 6-5

The Connection tab of the Options dialog box.

Setting Internet Connection Options The Internet Connection check boxes let you specify when Money should connect to the Internet, and in the case of America Online users, how Money connects to the Internet. All of these check boxes are self-explanatory. For example, the first check box lets you specify whether or not you want to get your financial information from the Internet once a day when you start Money.

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When you click the Connection Settings button in the Internet Connection area, Money displays the Internet Properties dialog box. The Internet Properties dialog box is a Windows Control Panel tool that allows you to make changes to your computer’s Internet connection. We are not going to describe here how to make changes using the Internet Properties dialog box. A discussion of the Internet Properties dialog box, first of all, isn’t really necessary because programs like Money automatically make changes to your Internet properties. Second of all, making changes to the Internet Properties dialog box is really an advanced Windows users’ topic.

Setting Browser Options The Browser buttons let you specify how Money displays web pages. If you click the Browse The Internet From Within Money option button, for example, Money displays web pages inside the Money program window. If, instead, you click the Always Use My Default Browser To Browse The Internet option button, Money opens your web browser program and then displays web pages inside its program window.

How do I change the way Money handles data entry and data editing? Money provides a neat set of data entry and data editing rules. For example, if Money can guess what you are typing into a field, Money will automatically complete the bit of information you are typing. If you select a field that includes a drop-down list— such as the Category field—Money automatically drops the list for you. Money also provides other data entry and data editing tools, too, such as the ability to automatically insert the decimal point in the Amount field. Although Money’s initial setup reflects the date editing and entry options that work best, you can change most of these options. To do so, choose the Tools menu’s Options command. When Money displays the Options dialog box, click the Editing tab (see Figure 6-6).

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Figure 6-6

The Editing tab of the Options dialog box.

NOTE The initial Entry Options and Confirmation Options settings are probably those you want to use. To safely and successfully make changes to these settings, work with Money for a while before deciding whether one or more of its data entry or data editing conventions doesn’t work well for your specific situation.

Setting Entry Options The Entry Options box has check boxes that allow you to control the way in which Money handles data entry. Selecting the Use AutoComplete check box, for example, tells Money to determine what you are typing as you are typing it. For example, if you’re typing a business name in the Payee field of the account register, after you have typed three or four characters, Money compares what you typed with a list of past payee names. If Money detects a match, it completes the entry for you. Selecting the Automatically Drop Down Category Lists check box tells Money to automatically open the Category list box when you select the Category field.

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Selecting the Automatically Insert Decimal Point In Amount Field check box tells Money to automatically insert a decimal point two digits from the right into every value you enter in an Amount field. For example, with this option set, if you enter the value 123 in the field, Money inserts a decimal point so that the amount actually recorded is 1.23. Selecting the Use Enter Key To Move Between Fields check box allows you to press the Enter key to move from one field to the next. Selecting the Automatically Create A New Transaction After Creating One In Transaction Entry Forms check box tells Money to automatically create a new transaction in the account register after you create one using a transaction entry form. Selecting the Use Transaction Entry Forms To Enter Or Edit Register Transactions check box tells Money that you want to use the transaction entry forms that appear at the bottom of the account register window to enter and edit data. (You don’t have to use transaction entry forms, however; you can enter and edit data directly using the account registers.) Selecting the Always Start A New Transaction When Selecting A Transaction Form check box tells Money that every time you select the transaction form, you want Money to assume that you are starting on a new transaction. Selecting the Keyboard Shortcuts For Quicken Users check box tells Money that you want Quicken shortcuts to work in Money. (You might want to turn on this feature if you have been a previous user of Quicken.)

Setting Confirmation Options The Confirmation Options box has four check boxes that also work in a self-explanatory manner. Selecting the Confirm Changes To Transactions check box tells Money to display a confirmation message box that lets you confirm or reject changes to transactions. Selecting the Confirm New Payees check box tells Money to ask you to confirm that you’re entering a new payee any time you do. (If you wanted to restrict the number of

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payees listed on the Payee Names list, you might select this check box. By selecting this check box, you are much less likely to need several different versions of the same payee name.) Selecting the Display A Warning When Changing Reconciled Transactions check box tells Money to display a warning message box whenever you begin to make a change to a reconciled transaction. Typically, you don’t make changes to reconciled transactions because they are transactions that have already cleared a bank or cleared your online brokerage account. Selecting the Display A Warning When Using Duplicate Check Numbers check box tells Money to display a warning message box whenever you attempt to reuse a check number.

How do I change Money’ Money’ss investment record keeping procedures? The Options dialog box (choose the Tools menu’s Options command) includes an Investments tab. The boxes and buttons on the Investments tab let you make changes to the way in which Money’s investment record keeping works (see Figure 6-7).

Figure 6-7

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The Investments tab of the Options dialog box.

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Setting the Investment Options The Investment Options box on the Investments tab has two check boxes. The first lets you specify whether Money requires a transfer account for investment transactions you enter. The second lets you indicate that you want to use a first-in, first-out (FIFO) costing assumption for tracking your investments. In general, you want to leave these two check boxes empty because that usually works best. You won’t necessarily want to require transfer accounts, for example. And you probably don’t want to use a FIFO costing assumption. In any case, you definitely don’t want to make changes to these options until you have learned how Money’s investment recordkeeping works. NOTE How Money’s investment record keeping works is described in Chapters 10 and 11.

Setting the Portfolio Manager Options Clicking the Portfolio Manager button on the Investments tab displays the Portfolio Manager Options dialog box (see Figure 6-8). The Portfolio Manager Options dialog box includes four tabs that let you control which information is displayed and how it is displayed in the Portfolio Manager window.

Figure 6-8

The Portfolio Manager Options dialog box.

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The News & Updates tab lets you specify how frequently the Portfolio Manager updates price information and how it alerts you to new information. For example, you can tell Money how to update price information by selecting the Update Price Information Every X Minutes check box and then specifying the number of minutes. And you can use the News And Advisor FYI Alert Icons settings to tell Money to use special icons to flag recently received data. The Display tab check boxes let you specify whether the Portfolio Manager should show portfolio subtotals, a grand total, closed positions, (investments you have sold or transferred), and watch accounts (securities and accounts you’ve told Money you want to monitor even though you don’t own them). The Display tab also includes buttons you can use to specify whether stock prices should be displayed using fractions or decimal values. The Status Bar tab lets you specify how Money plots securities information in its bar chart. Finally, the Currency tab enables you to specify the currency you want your portfolio translated into. If your portfolio is in U.S. dollars, use the default value of US Dollar. If your portfolio is based on another currency, select the Translate Portfolio Currency United States Values Into box, and then select the appropriate currency from the corresponding list. Select the translation options (prices and/or extended values) you need from the Portfolio Currency Translation options.

Setting the Investment Categories Options Clicking the Investment Categories button on the Investments tab displays the Investment Categories dialog box (see Figure 6-9). The Investment Categories dialog box lets you specify which income and expense categories Money should use to record investment income, expenses, capital gains, and losses.

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Figure 6-9

The Investment Categories dialog box.

How investment record keeping for income, expenses, gains, and losses works is quite complicated. You should leave these settings alone. If you do know that Money’s investment record-keeping conventions are wrong for your specific situation—again, this is very unlikely—you can use this dialog box to specify new investment income and expense categories that you can use to track various investment profits and losses.

Setting the Employee Stock Options The Employee Stock Options buttons let you specify how Money should handle any employee stock options you are tracking (see Figure 6-7). If you want to track the market value of all the shares you were granted, click the Market Value Of Total Shares Granted option button. If, on the other hand, you want to track only the market value of the vested shares you hold, click the Market Value Of Vested Shares Only option button.

Setting the Capital Gain Options At the bottom of the Investments tab, Money provides what is perhaps the most important bit of control over investment record keeping. The Capital Gains boxes let you specify how Money should determine whether capital gains or losses are long term (see Figure 6-7). What you need to do is enter the time cutoff that determines when a gain or loss is long term. For example, if a gain or loss becomes long term one year after the initial purchase of the investment, enter 1 in the text box and then select Years. Customizing Money

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How do I change the Money Planner’ Planner’ss assumptions about extraordinary financial events? The Money Planner makes some assumptions about how it should handle extraordinary financial events in your personal financial life. If you want to review a possible change to the rules the Planner uses for handling these special events, choose the Tools menu’s Options command and then click the Planner tab. Money displays the set of options shown in Figure 6-10.

Figure 6-10 The Planner tab of the Options dialog box.

The Discretionary Expenses box lets you specify how much you would be willing to reduce your living expenses in order to increase your savings. After you supply this information, the Planner performs an analysis of how quickly you can accumulate savings for large ticket items. NOTE Click the Up arrow button or Down arrow button to incrementally adjust the percentage shown in the Discretionary Expenses box.

The Contribution Limits box lets you specify what the Planner should assume or do once you reach the Internal Revenue Service’s limits on contributions to tax-deferred accounts. If you click the Stop Saving option button, the Planner assumes that you don’t save amounts in excess of what you can contribute to the tax-deferred account.

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If you click the Invest The Surplus In My Taxable Portfolio option button, the Planner assumes that you invest the maximum amount possible in the tax-deferred accounts that you have, and then that you place any excess in a regular taxable portfolio. The Sweep box lets you specify what Money should do with any surplus income you receive. This extra income is simply the amount of income you haven’t budgeted to spend. You can choose, however, to have Money show the effects of saving by entering a positive value in the Sweep box. NOTE The Sweep box also includes arrow buttons that you can click to incrementally adjust the Sweep percentage. If you will probably spend any surplus income you receive—which is the usual case—leave the Sweep percentage set to zero.

If you have created a debt reduction plan, Money also enables the Reset Debt Plan button. If you click this button, Money erases your current debt reduction plan.

How do I customize the list of currencies that Money uses? As mentioned in Chapter 1, Money allows you to keep your financial records using multiple currencies. To see the list of Money currencies and to make changes to the list of Money currencies that you can use, choose the Tools menu’s Options command and then click the Currencies tab (see Figure 6-11).

Figure 6-11 The Currencies tab of the Options dialog box.

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To review the list of currencies that Money recognizes, simply scroll the list of currencies that appear on the Currencies tab. The main currency you selected during the Money setup process is identified as the base currency. To delete a currency from the list, click the currency to select it and then click the Delete button. To rename a currency, select the currency by clicking it and then click the Rename button. When Money displays the Rename Currency dialog box, provide a new name and symbol for the currency. To add a new currency to Money’s list, click the Add New Currency button. When Money displays the Currency dialog box, provide a name and symbol for the currency using the name and symbol text boxes. If you do work with multiple currencies, you’ll need to provide exchange rates to convert currencies to their equivalent main currency values. To provide an exchange rate, select the currency from the list box on the Currencies tab. When Money enables the text boxes shown in the bottom portion of the Currencies tab, use the drop-down list box to identify which way the exchange rate will work. For example, if you are going to express the exchange rate in terms of U.S. dollars per Swedish kronas, select this description from the list box. Next, enter the exchange rate value in the Exchange Rate text box. Figure 6-12, for example, shows an exchange rate in which five U.S. dollars equal one Swedish krona.

Figure 6-12 Five U.S. dollars equals one Swedish krona on the Currencies tab of the Options dialog box. 100

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Click the Set As Base Currency button to change the currency that Money assumes you want to use for record keeping when you don’t specify otherwise. If appropriate, select the Update Exchange Rate Online or This Country Uses The Euro check boxes to indicate how Money should handle transactions denominated in the selected currency.

How do I change the way Money handles recurring bills and deposits? You can change the way that Money presents recurring bills and deposits for possible entry in the Money account register. To do this, choose the Tools menu’s Options command. When Money displays the Options dialog box, click the Bills And Deposits tab (see Figure 6-13).

Figure 6-13 The Bills And Deposits tab of the Options dialog box.

The Money Express box lets you tell Money to use its Money Express window to alert you to any upcoming bills that might need to be paid and any deposits that might need to be recorded. Select the Use Money Express check box to have Money perform this task. NOTE As noted in Chapter 1, Money displays Money Express when you start Windows.

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The Bills box lets you specify how early Money should remind you of upcoming bills. The Remind Me X Days In Advance Of A Due Bill text box lets you input the specific number of days that Money should give you advance notice. Selecting the Count Only Business Days check box tells Money not to count weekend days, only business days. The Checking For Recurring Payments box lets you tell Money to watch for transactions you record on a repeated basis, and then, once it has identified the transaction, suggest that you have the transaction added to the Bills list. To have Money perform this check, select the Watch My Transactions For Recurring Payments check box.

How do I make changes to categories ? You can customize the Money categories in two basic ways. You can change—add to, edit, or delete from—the Money Category list, and you can specify in terms of mechanics how Money uses categories. Both types of category customization are often necessary. In the paragraphs below we describe how to perform both types of customization.

Modifying the Category List Because it is the most common type of category customization, let me begin by explaining how you can change the category list. To change the category list, take the following steps: 1. Display the Money Category list. To display the Money Category list, select Categories & Payees from the Accounts & Bills menu on the Money home page. When you do this, Money displays the Set Up Your Categories window (see Figure 6-14).

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Figure 6-14 The Set Up Your Categories window.

2. Add any new category required. To add a new category, click the New button. Money displays the first New Category dialog box (see Figure 6-15). To create the new category, enter a name in the Name box. Then click a Category Type option button—Income or Expense— to identify which type of category you are creating.

Figure 6-15 The New Category dialog box.

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Click the Next button. Money asks under which group the new category falls. To answer this question, select the group from the list that Money displays that best fits the new category. Click the Finish button. At this point, you have successfully set up the new category. NOTE If you select a list from the list box, Money provides a more elaborate description of the category group in a box next to the list box of groups.

3. Delete any unneeded categories. You can easily delete categories that you don’t want on the Category list—and in fact, you should do so to simplify your list. To delete a category, simply scroll through the Category list in the Set Up Your Categories window until you find one you want to delete, click the category to select it, and then click the Delete button. Money deletes the category without asking for confirmation. If you need to delete additional categories, repeat this step as many times as needed. 4. As necessary, edit any category names or descriptions. You can edit the category description that appears on the Category list. You may want to do this because this is the description that Money uses on reports that show the category. You can also change the category type. To make either change, scroll through the list of categories until you find the one you want to change, click the category to select it, and then click the Modify button. When you do this, Money displays the Modify Category dialog box, as shown in Figure 6-16.

Figure 6-16 The Modify Category dialog box.

To change the category name, simply replace the current contents of the New Name text box. You can also use the Income Category and Expense Category buttons to change the category type for the selected categories. After you have made changes to either the name or category type, click the OK button.

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NOTE The Move button, which also appears on the Set Up Your Categories window, isn’t really for modifying the Category list. The Move button displays the Move Transactions dialog box, which lets you recategorize the transactions you have previously recorded. For example, suppose that you use the category electricity to record checks you write to the local power company. But then you realize that you really want to use a new category named utilities. The Move Transactions dialog box lets you, in effect, “move” all the transactions you categorized using the electricity category to the new utilities category. What actually happens when you use the Move button and its Move Transactions dialog box is that Money goes through all the transactions that have the electricity category and replaces the category electricity with the new category utilities.

5. As necessary, identify which new categories are tax-related. If you add any new categories to the Money Category list, you should indicate whether the new category is tax-related. A “tax-related” category is one that tracks an amount that appears on a line of your federal or state income tax return. To identify a new category as a tax-related category, click the Set Up Tax Categories link. Money displays the Associate Money Categories With Tax Form Lines window, as shown in Figure 6-17.

Figure 6-17 The Associate Money Categories With Tax Form Lines window.

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Setting the Standard Categories Options The Standard Categories box has other options you might want to use. Clicking the Restore Standard Categories button restores the standard, default list of Income and Expense categories. In other words, by clicking this button, you erase your changes to the Category list. These are the sorts of changes described in previous paragraphs. Clicking the Remove Unused Categories button removes those categories from the Category list that you haven’t used for recording transactions. If you do click this button, you probably want to leave the Ask Me Before Removing Each Category check box empty. Otherwise, Money will ask you to confirm the deletion of each unused category.

How do I customize the way Money prints checks? To change the way Money prints checks, choose the Tools menu’s Options command and click the Print Checks tab. Money displays the dialog box shown in Figure 6-18.

Figure 6-18 The Print Checks tab of the Options dialog box.

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Setting the Printing Checks Options The Printing Checks box has check boxes that let you specify several criteria. Selecting the Prompt If Checks Are Postdated check box tells Money to confirm that you want to print checks that use a date in the future. Selecting the Print Payee Name In First Line Of Address Field check box tells Money to print the payee name in the address block. (You want to print the payee name in the address block if you plan to mail the checks using an envelope with a window.) Selecting the Use My Existing Checks From Quicken check box tells Money that you are going to use checks that you originally purchased for Quicken with the Money program. Money needs to know if you are using Quicken checks because they are slightly different from Money checks. Click the Font button to control which font Money uses for the checks it prints. NOTE Clicking the Font button displays the Check Printing Font dialog box. This dialog box is easy to use. Use the Font list box to specify a font. Use the Size list box to specify a size for the font. Notice that Money shows how your font specification will look in the sample box. If you make changes to the font, be careful to use one that is legible and adequately sized.

The Printing Alignment box has options that allow you to make several important specifications about the actual check forms themselves. For example, the Full Sheet Of Checks Vertical Alignment box lets you specify whether Money needs to begin higher or lower on the page. If Money should be printing lower on the page, enter a value in the box. One equals 1/16th of an inch. A positive value means that Money should move the printed information down the page. A negative value means that Money should move the printed information up the page. The Full Sheet Of Checks Horizontal Alignment box works in the same way— except that it controls whether Money should move its printing to the left or the right. Again, one equals 1/16th of an inch. If you want to move the printed information to the right, enter a positive value. If you want to move the printed information to the left, enter a minus value.

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The Partial Sheet Of Checks Vertical Alignment box and the Partial Sheet Of Checks Horizontal Alignment box work in the same way as their full sheet counterparts. However, these alignment settings affect only those situations in which you are printing a partial sheet of checks. Again, you need to remember the following points: one equals 1/16th of an inch; if you want to move the printing down or to the right, enter a positive value; and if you want to move the printing up or to the left, enter a minus value. NOTE

In general, if you are working with an inkjet or laser printer, you should have no problem with check alignment. Check alignment problems usually occur only when working with an impact printer.

How do I change the way reports print? To change the way Money prints reports and charts, choose the File menu’s Print Setup command and then choose Report And Chart Setup from the submenu. Money then displays the Report And Chart Setup dialog box (see Figure 6-19).

Figure 6-19 The Report And Chart Setup dialog box.

You can use this dialog box to alter the way that Money prints reports and charts. For example, use the Printer list box to specify which Windows printer you want Money to use for printing. Use the Orientation buttons—Portrait and Landscape—to select the direction in which Money prints its reports and charts on a piece of paper. Finally, use the Paper Size and Source boxes to select a paper size and the tray that you want to use for printing. NOTE Which options appear in the paper area of the dialog box depends on your printer. Different printers provide different paper options.

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Click the Options button to display the Printer Properties dialog box. The options in this dialog box give you extensive control over a printer’s operation. How this dialog box works is beyond the scope of this book, so if you have questions, refer to your Windows documentation or the information that came with your printer. NOTE The printers that Money lists in the Report And Chart Setup dialog box are actually the printers you have installed for use with Windows. In order to use a printer with the Money program or any other Windows program, you need to first add the printer using the Windows Add New Printer tool. If you have questions about how the Add New Printer tool works, refer to your Windows documentation.

How do I change the way a printer prints checks? You can also change the way that your printer prints any checks you produce. To do this, choose the File menu’s Print Setup command and then choose Check Setup to display the Check Setup dialog box (see Figure 6-20).

Figure 6-20 The Check Setup dialog box.

The Printer box lists the printers you can use for producing checks. To select a different printer, click the Printer list box’s button and select the printer you want to use. Money provides Type and Source boxes for specifying the type of check form you are using and the printer tray source that holds the checks. To specify which type of check you are using, click the Type list box’s button and select the correct type. The Source list box displays the different paper sources that your printer supplies. Which sources you have depends on your printer.

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NOTE Next to the Type and Source list boxes Money shows a picture of the check.

Selecting the Require Address For Payee When Printing Checks check box tells Money that whenever you enter a check that you say you later want to print, Money should require an address. Select this check box if you plan to use envelopes with windows. The check payee and address block provides the information that shows through the envelope window. NOTE Click the Font button to specify which font and point size you want Money to use for printing the checks. To specify a font, click the Font box’s button and select a font from the list. To specify the size for the font, click the Size box’s button and select a size from the list. Money shows you what your font and size specification look like in the sample box.

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Chapter 7

BANKING ONLINE

Questions Answered in This Chapter • What are online financial services? • How do I find a bank? • How do I pick a bank? • How do I set up an account for online banking? • How do I pay a bill using online bill payment? • How do I transfer between online accounts? • How do I download an online statement? • How do I reconcile an online account? If your computer connects to the Internet, Microsoft Money 2001 lets you use online financial services to more easily pay bills, bank, and even invest. And none of these services is difficult to use. If you have used Money, you will find that the activities are intuitive and time saving.

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What are online financial services? Banks can offer three types of financial services: online bill payment, online banking, and in special cases, online brokerage. Online bill payment simply means you can use an account to pay bills electronically. Online banking means the bank will allow you to download an online statement into the Money data file and to transfer money between accounts at that bank. Online brokerage means that the bank or brokerage company will allow you to download an online statement reflecting your brokerage account activity.

How do I find a bank? To find a bank that supports online financial services, choose the Help menu’s Microsoft On The Web command. When you choose Microsoft Money Homepage from the submenu, Money opens a web page with links to a list of financial institutions offering online financial services. Web pages change frequently, but at the time of this writing, the main Money home page includes an Online Finance link that leads to a page called Banks Online. And this page supplies hyperlinks that lead to a list of banks offering online financial services. Figure 7-1 shows a partial list of banks online.

Figure 7-1

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A list of banks offering electronic bill payment and banking services.

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How do I pick a bank? When you reach the list of banks or brokerage companies offering online financial services, look through the list and find one that works for you. NOTE The list of online financial institutions available at the Money home page shows some financial institution names as hyperlinks. In general, if the financial institution name is a hyperlink, the institution provides a greater selection of online financial services. Click the bank’s link to get to the bank’s web page for more information.

You pick an online financial institution in the same way that you pick a regular bank— by answering some questions about the bank. Are the bank’s branch locations convenient to where you shop, work, and live? Does the bank provide the services you need or want? What fees does the bank charge for its services? Picking a financial institution is based on common sense, really. If you have had a good experience with your current bank and it offers the desired mix of online services, your best bet is to stay with your current bank.

How do I set up an account for online banking? It is very easy to set up an account for online banking. As noted in Chapter 1, the first task that you would need to do is fill out any paperwork provided by the bank. You would probably need to get and then complete an online banking application form, and then wait while the application is processed and approved. After the application is approved, the bank should send you a letter that provides you with any special instructions, as well as a personal identification number, or PIN, for accessing the account. After you have completed the bank’s application process, take the following steps: 1. Display your account list. To display a list of accounts, including the account for which you want to set up online banking, click the Accounts & Bills link, andthen select Account List. 2. Select the account you want. Click the account in the Pick An Account To Use window so that Money displays the account register.

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3. Indicate that you want to change the description and setup of an account. The account register displays a list of tasks along the left edge of the screen, as shown in Figure 7-2. Click the Change Account Details link. When you select this task, Money displays the Update Details window, as shown in Figure 7-3.

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Figure 7-2

The account register window.

Figure 7-3

The Update Details window.

Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

4. Run the Online Setup Wizard. Click the Go To Online Setup button, and Money starts an Online Setup Wizard which steps you through three dialog boxes that you use to set up the account. After you complete the setup with the Online Services Wizard, Money displays the Review Online Services window. Verify that this window correctly describes the online services you have set up for your account. Then click the Done button. Money redisplays the Update Details window. Click the Done button, and Money redisplays the account register for the account. After you have finished the online setup for an account, you can then use it.

How do I pay a bill using online bill payment? To pay a bill using the online bill payment service, you record the withdrawal in your check register in about the same way as you would a typical transaction. The only two differences are that you need to specify the check number as E-Pay, and you need to provide the address and account information for the payment. The E-Pay entry in the Num box tells Money this transaction is an online bill. When you click the Enter button to record an online bill payment transaction, Money displays the Online Payee Details dialog box. Use this dialog box to provide the correct payee name, the payee mailing address for payments, a phone number, and an account number. Your financial institution then uses this information to create a check for the company you are paying and identify the reason for payment. After you provide this information, click the OK button and Money records the online bill payment transaction in your register. NOTE Include a phone number so that the bank can call the company you are paying if a question arises.

After you have recorded any online bill payment transactions in the account register, you can send these payments to the bank. To do this, display the account register that holds the online bill payment transactions you want to make. Then click the Send Payments link, which appears in the account register window, to start the transmission of online bill payment transactions.

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NOTE After you click the Send Payments link, Money displays the Connect dialog box, which you use to provide a password. Enter this information in the Password text box, and click Connect. Money then connects to the bank’s computer using your Internet connection and transmits your online bill payment transactions.

How do I transfer between online accounts? You can transfer money between online accounts in two ways. First, you can, of course, transfer money in the usual way, such as by filling out an account transfer slip at the bank and then handing it to a teller over the counter. Second, you can transfer money online by recording the transfer in the usual way but then entering Xfer in the Num box. The Xfer code identifies the transfer transaction as an electronic transfer. To transmit instructions to your bank so that it will make the transfer, click the Send Payments link. When Money displays the Connect dialog box, enter your password and click Connect. Money uses your Internet connection to connect to the bank’s computer and transmits your online transfer instructions.

How do I download an online statement? If your bank supports online banking, you can download an online statement. To do this, display the account register for the account, click the Connect To Bank task link, and then choose Connect To Online Services from the submenu. When Money displays the Connect dialog box, enter your password and then click Connect. Once you download the online statement, Money displays a list of the downloaded transactions. What you need to do next is match these transactions to those transactions already recorded in your register. To match a transaction, click it. When you do, Money highlights the transaction in a list of downloaded transactions and attempts to match it to a transaction already listed in the register. If Money can match a downloaded transaction to a transaction you’ve recorded previously in the register—usually this would be on the basis of identical transaction amounts—accept the transaction. By accepting the transaction, you essentially record

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the fact that a transaction you’ve recorded in your register has cleared the bank and appeared on its bank statement. If a transaction that appears on the list of downloaded transactions has not already been entered in your account register, you can also accept it. In this case, however, what happens is that Money records the transaction downloaded from your bank in your account register. You need to provide any missing data to complete your record keeping.

How do I reconcile an online account? You reconcile online accounts in one of two ways: First, you can use the same method as used for your other non-online accounts. In other words, you can reconcile an online account in the same way that you reconcile an account that isn’t online. NOTE Chapter 3 describes how you reconcile, or balance, accounts.

You can also reconcile an online account in a second simpler way. If every few days you download an online statement, you can skip a formal reconciliation. By regularly downloading transactions, you will frequently be making sure that you are not missing transactions. If you do forget to record a transaction, or if a bank-initiated transaction occurs that you were not aware of until the bank statement appears, you will see and then be able to record these transactions. You will also be able to record which transactions have cleared the bank because you will be keeping close track of the transactions that get recorded by the bank, so you won’t need to reconcile your account, say, at the end of the month. Essentially, you will be reconciling your account every few days.

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Chapter 8

USING A CREDIT CARD

Questions Answered in This Chapter • Do I need to track credit card spending? • How do I set up a credit card account? • How do I record a credit card charge? • How do I record a credit card credit? • How do I reconcile a credit card account? • How do I record credit card service charges? • How do I record credit card interest charges? • How do I pay off a credit card balance? • How do I download an online credit card statement? • How do I contest a credit card charge? Microsoft Money 2001’s account register works well for tracking credit card transactions and balances. Conveniently, the steps you take to record credit card activity using Money closely resemble the steps you take to record banking activity. In fact, if you have already been using Money to track a bank account, you will have little difficulty using Money for a credit card account.

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Do I need to track credit card spending? You may not need to use Money for tracking a credit card. You only need to use Money for credit-card record keeping if it is important to you to track your credit card balance and to track what you spend or charge at various merchants. This might seem like something everybody would want to do, but if you always pay off your credit card balance at the end of each month and don’t need to be concerned about your balance between payments, you won’t need to track the outstanding balance. And if you don’t care where you charge, there’s no compelling reason for you to track individual credit card transactions.

How do I set up a credit card account? If you decide to set up a credit card account, you can easily do so. If you used the Setup Assistant to prepare for using Money—Chapter 1 describes how to do this—you may have already set up a credit card account. Money, during the setup process, would have asked you about credit card accounts that you hold and whether you want to set them up for record keeping. If you answered questions about your credit cards during the setup process, you’ve already set up credit card accounts and can begin using them. If you didn’t set up credit card accounts as part of the Money setup process, you can easily do so by following these steps: 1. Display the Pick An Account To Use window. Click the Accounts & Bills link, and then select Account List. Money displays the Pick An Account To Use window. 2. Indicate that you want to set up a new account. Click Set Up Your Accounts in the list of common tasks. 3. Follow the New Account Wizard’s instructions. To set up a new account, click Add A New Account to start the New Account Wizard. To set up your account, simply answer the wizard’s questions. NOTE You need to set up a separate credit card account for each credit card you want to track using Money.

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How do I record a credit card charge? To record credit card charges using Money, pick the credit card account you used and then describe the charge in detail, including the payee, the check date, and the amount. To record charges, take the following steps: 1. Display the appropriate account register. To display the register for the credit card account you used for the charge, click the account name listed in the Favorite Accounts area of the Money home page. If you don’t see the account listed, click the Accounts & Bills link and then select Account List to display a list of all your Money accounts. Then click the account you want (see Figure 8-1).

Figure 8-1

The credit card account register resembles the bank account register.

2. Indicate that you want to record a charge. To tell Money to record a charge, first click the Charge tab in the transaction entry area beneath the account register. Then click the New button. Money opens up input boxes, or fields, in the transaction entry area that you use to record information about the charge. 3. (Optional) Provide the charge number. If you have a number that uniquely identifies the charge, enter this information in the Number box.

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4. Provide the charge date. Select the Date box by either pressing the Tab key or clicking the mouse and then entering the charge date. Type a date using the regular date format, or click the box’s button to display a pop-up calendar that you can use to select the date. To use the pop-up calendar, click the day you want to enter. Although the calendar displays only one month’s worth of dates, click the arrows that appear on either side of the month name to move to the previous or upcoming month. NOTE Money also provides several codes that you can use to enter dates once the Date box is selected. Type the letter t to tell Money to enter today’s date in the Date field. Type m to enter the first day or h to enter the last day in the current month in the Date box. Type y to enter the first day of the year or r to enter the last day of the year in the Date box. Notice that t is the first letter in the word today, that m and h are the first and last letters in the word month, and that y and r are the first and last letters in the word year. This bit of trivia should help you remember these codes.

5. Identify the merchant or business you are paying. Press the Tab key or click the mouse to select the Pay To box. Then enter the name of the person or business you are paying. Money keeps a list of all the people or businesses to whom you have previously written checks or with whom you’ve charged money on a credit card. To select a name from this list, click the Pay To box’s button so that Money displays a list of past payees. Then select a name from the list by clicking. 6. Record the charge amount. Press the Tab key or click the mouse to select the Amount box. Then enter the charge amount. Or click the Amount box’s button to display a pop-up calculator you can use to calculate the charge amount. 7. Categorize the charge. To categorize the charge, press the Tab key or click the mouse to select the Category box. Next, click the Category box’s button so that Money displays a list of categories you can use to describe the reason for your charge. Then click the category you want.

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You can also record a subcategory for the charge. To do this, press the Tab key or click the mouse to select the Subcategory box. Next, click this box’s button so that Money again displays a list—this time a list of subcategories. Then click the subcategory you want to select. NOTE The Subcategory box appears just to the right of the Category box.

8. (Optional) Record a memo description. You don’t need to record a memo description for credit card charges, but Money provides space for you to include additional information about a charge. If you want to collect this information—and it’s not a bad idea—press the Tab key or click the mouse to select the Memo box. Then enter any additional information you want to store in the field. 9. Record the charge. After you have correctly described the charge, click the Enter button. This tells Money to record the charge in the register. As soon as Money records the charge in your register, it also updates the account balance. Figure 8-2 shows how the account register looks after recording the first charge.

Figure 8-2

The credit card account register with a recorded charge.

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How do I record a credit card credit? You record credits in the credit card account register in roughly the same way that you record a deposit in a bank account register. You would probably record the source for the credit along with the date and the amount. To record a credit, take the following steps: 1. Display the appropriate account register. To display the credit card account register, click the account name listed in the Favorite Accounts area of the Money home page. If you don’t see the account listed, click the Accounts & Bills link and then select Account List to display a list of all your Money accounts. Then click the account you want. 2. Indicate that you want to record a credit. To tell Money to record a credit, first click the Credit tab in the transaction entry area beneath the actual account register. Then click the New button. Money opens up input boxes, or fields, in the transaction entry area that you use to record information about the credit. 3. Provide the credit reference number. Use the Number box to record the credit reference number. 4. Provide the credit date. Select the Date box by either pressing the Tab key or clicking the mouse and then entering the date. Type the date using the regular date format, or click the box’s button to display a pop-up calendar that you can use to select the date. 5. Identify the merchant issuing the credit. Press the Tab key or click the mouse to select the From box. Then enter the name of the person or business issuing the credit. Money keeps a list of all the people or businesses with whom you’ve previously transacted. To select a name from this list, click the From box’s button so that Money displays a list of past payers. Then select a name from the list by clicking. 6. Record the credit amount. Press the Tab key or click the mouse to select the Amount box. Then enter the credit amount. Or click the Amount box’s button to display a pop-up calculator you can use to calculate and then enter the amount.

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7. Categorize the credit. To categorize a credit, press the Tab key or click the mouse to select the Category box. Next, click the Category box’s button so that Money displays a list of categories you can use to describe the reason for the credit. Then click the category you want. If appropriate, you can also record a subcategory for the credit. To do this, press the Tab key or click the mouse to select the Subcategory box. Next, click this box’s button so that Money again displays a list—this time a list of subcategories. Then click the subcategory you want to select. NOTE If a merchant issues a credit for a previous charge, the credit category should be the same category originally used to record the charge. By using the same category as for the original charge, you undo the effect of the original transaction.

8. (Optional) Record a memo description. Money provides space for you to include additional information about a charge. To collect this information, press the Tab key or click the mouse to select the Memo box and then enter the additional information you want. 9. Record the credit. After you have correctly described the credit, click the Enter button. Money records the deposit in the register and updates the account balance. Figure 8-3 shows how the account register looks after recording the first credit.

Figure 8-3

The account register with a recorded credit. Using a Credit Card

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How do I reconcile a credit card account? To balance, or reconcile, an account in Money, you simply identify the credit card account you want to reconcile. Then you use Money’s account reconciliation feature to explain the difference between Money’s balance and the credit card company’s balance. NOTE If you are taking advantage of Money’s online banking features, you may be able to reconcile your credit card balance automatically. How you do this is described in Chapter 7 in the answer to the question, “How do I reconcile an online account?”

To reconcile a credit card account, take the following steps: 1. Display the credit card account you want to reconcile. To display the register for the account you want to reconcile, click the account name listed in the Favorite Accounts area of the Money home page. If you don’t see the account listed, click the Accounts & Bills link and then select Account List to display a list of all your Money accounts. Then click the account you want. 2. Tell Money you want to balance the account. Along the left edge of the Money window is a list of common tasks. When the Money window shows the account register for a credit card account, one of these tasks is Balance This Credit Card Account. By clicking this task link, you tell Money that you want to reconcile the account displayed in the window. After you click the task link, Money displays the credit card reconciliation dialog box, as shown in Figure 8-4. (To label the dialog box, Money uses the name of the credit card account.)

Figure 8-4

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The credit card reconciliation dialog box.

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3. Provide the statement date. To begin the reconciliation process, enter the statement date in the Statement Date box. This date comes directly from your credit card statement. 4. Enter the starting balance. Enter the beginning account balance from your credit card statement in the Starting Balance box. If you were reconciling a credit card account using the January statement, for example, the starting balance might be the balance on January 1, or whatever the first day is of the statement month. 5. Enter the ending balance. Enter the ending account balance from your credit card statement in the Ending Balance box. This is the credit card account balance on the last day of the statement. If you were balancing an account using the January statement, for example, the ending balance might be the credit card account balance on January 31. 6. Enter the service charge. To record a service charge, you need to enter two or three pieces of information. First, enter the service charge amount from your credit card statement in the Service Charge box. Second, categorize the service charge using the Category box. Money initially suggests you use its Service Charges category. But you can select or create some other spending category if you prefer. Money also supplies a Subcategory box. Clicking the Category and Subcategory boxes’ buttons displays a list of spending categories. 7. Enter the amount of interest charged. To enter the amount of interest charged during the statement month, you again enter two or three pieces of information. First, enter the amount of interest charged in the month in the Interest Charged box. Clicking the Interest Charged box’s button displays a pop-up calculator. Second, categorize the interest charged by entering an expense category in the Category and, optionally, the Subcategory box. Clicking the Category and Subcategory boxes’ buttons displays a list of categories or subcategories. 8. Identify the cleared transactions. Click the Next button. Money then displays a special version of the account register window (see Figure 8-5). You use this account register to identify the cleared transactions for the credit card account.

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Figure 8-5

The account register window used for credit card reconciliation.

9. Mark the cleared transactions. Using the reconciliation version of the account register window, review each of the transactions that have cleared the credit card company. If you see a transaction in the register that also appears—in other words, is cleared—on the credit card statement, mark it as cleared. To do this, find the column labeled with a “C”—the “C” stands for cleared—and click the box for that transaction. For example, in Figure 8-5, the second transaction listed might appear on the credit card statement. This means that the transaction needs to be marked as cleared. To do this, click the “C” field in the window. Money then puts a “C” in that box. Repeat this step for each transaction that has been recorded by your credit card company. 10. Click the Next button to indicate that you are finished. Along the left edge of the screen, Money provides information about the account you are balancing. Most important is the Difference amount reported about twothirds of the way down this body of information. When your account balances, the difference should show as zero. For example, after the simple list of transactions shown in Figure 8-5 is reconciled, the difference shows as zero. Figure 8-6 shows how the Money window looks when this is the case.

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Figure 8-6

The account register window after the account balances.

After you complete the reconciliation—in other words, once the Money records match the credit card company’s records—click the Next button. When you do this, assuming that your account balances, Money displays another dialog box telling you that you have successfully balanced your account. To conclude the reconciliation process, click the Finish button. If you have trouble reconciling your account, note that the window used for marking cleared transactions also includes a Postpone button. If you click this button, you save your partially completed reconciliation work. You can then come back to the work later by reinitiating this process. NOTE Chapter 3 describes several techniques you can use to balance an account that isn’t easily reconcilable. These same techniques also work for credit card accounts.

How do I record credit card service charges? Credit card service and maintenance fees can be recorded when you reconcile your account, as described in answer to the earlier question, “How do I reconcile a credit card account?” Or you can record service fees directly in the credit card register like any other charge.

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How do I record credit card interest charges? You can record the interest that the credit card company charges you in one of two ways. One way is to record it when you reconcile your account. If you do this, you record the interest charged and expense category as part of the reconciliation process. This is the easiest and most popular method. (This approach is described in the answer to the earlier question, “How do I reconcile a credit card account?”) You can also record interest income in the register like any other charge transaction. To do this, record the interest charge and then categorize it as interest expense or some other appropriate expense category.

How do I pay of offf a credit card balance? After you complete the credit card statement reconciliation process, Money gives you the option of making a payment on the credit card bill, as shown in Figure 8-7.

Figure 8-7

The Balance dialog box, with the option of making a credit card payment.

To pay some amount on your credit card balance, click the Pay Bill Now button. When you do this, Money displays the Edit Transaction dialog box, as shown in Figure 8-8. To pay your credit card bill or some portion of the credit card balance, complete this dialog box by entering the check number, the check date, bank account, and so on.

Figure 8-8

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The Edit Transaction dialog box.

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If you have questions about how these boxes need to be filled in, refer to Chapter 2 for the description of writing and recording a check. This process works in the same way. NOTE Money suggests you pay the current account balance. If you want to pay some other amount—such as the minimum payment amount—replace the value shown in the Amount box.

When you click the OK button to record the transaction described in the Edit Transaction dialog box, as shown in Figure 8-8, Money displays another dialog box that asks whether the payment you are recording is the scheduled monthly payment to the credit card company. If you click the Yes button to say this is the scheduled credit card payment, Money asks whether it can use the information you have entered to update its lists of recurring transactions. Answer this question by clicking either Yes or No, as appropriate. After you complete this simple sequence of steps, the payment is recorded in the account register. Obviously, if you’re simply recording a transaction to the account register, you need to then take care of the paperwork by writing the check and mailing it. If, however, you have specified that this is an online bill payment transaction, because that option is available for the account, then send the payment in the usual way. NOTE Chapter 7 describes online banking, including how you enter online bill payment transactions and then transmit them to the bank.

How do I download an online credit card statement? Downloading an online credit card statement works in the same way as downloading an online bank statement. The basic steps are to first display the credit card register and then click the Connect To Bank task link in the list of common tasks. Then choose Connect Online Services from the submenu to display the Connect dialog box. Enter your online banking password in this dialog box, and then click the Connect button. Money downloads an online version of your credit card statement.

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You can compare the transactions listed on your online statement with those in your register in the same way that you compare transactions on a downloaded bank statement to those in the bank account register. For more information about how this process works, refer to the discussion in Chapter 7 on downloading an online statement. NOTE If you have an online bank account at the same bank where you have an online credit card account, you can pay your credit card bill simply by transferring money from the online bank account to the online credit card account. Transferring money between online accounts is described in Chapter 7.

How do I contest a credit card charge? You handle contested and/or erroneous charges the same way in Money as you would if you were keeping track of your credit card charges and balances manually. First, you probably need to call the merchant and discuss the charge with them. If you can convince them that the charge is erroneous, they will issue a reversing charge which will appear on your next bank statement, but which will have the effect, at least as soon as the charge is recorded, of reducing your account balance. If you can’t resolve a disputed or contested charge by discussing the transaction with the merchant, you can contest the charge by contacting the bank. Typically, you do this by writing a letter and explaining why you shouldn’t have to pay the charge. At this point, as you may know, federal trade laws come into play and specify the steps for resolving this disagreement. In general, you don’t have to pay the credit card charge or interest on the charge until the issues related to the charge are resolved. Obviously, you don’t need to record a contested charge in the credit card register. If the contested charge appears on a list of credit card transactions that come on your online credit card statement, you can reject the charge so that Money doesn’t automatically record it in your register.

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Chapter 9

MANAGING YOUR DEBTS

Questions Answered in This Chapter • How do I set up an account for tracking a debt? • How do I handle an adjustable rate loan? • What if I make a mistake in describing a loan? • How do I record an amortizing loan payment? • How do I record a simple liability payment? • How do I adjust the principal and interest breakdown if Money’s calculation is incorrect? • Can I use Money’s loan interest summary on my tax return? • How do I handle property tax, escrow collections, and disbursements? • How do I prepare a loan amortization schedule? • When does it make sense to refinance a loan? • When does it make sense to pay off a mortgage early? Microsoft Money 2001 provides special tools that let you use its account register for tracking your debts. For example, you can track mortgages, loans, and other liabilities. NOTE Another common debt, of course, is credit card balance. How you use Money to keep records of credit card spending balances is described in Chapter 8.

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How do I set up an account for tracking a debt? How you set up an account for tracking a debt depends on whether the debt requires you to make regular payments of interest and principal. If the debt doesn’t require these payments, you set up a simple liability account. If the debt does require these payments, you set up an amortizing liability account. NOTE Most debts are amortizing liabilities. For example, car loans, mortgages, and many personal loans typically require the borrower to regularly make payments of principal and interest according to an amortization schedule.

Setting Up a Simple Liability Account To set up a simple liability account, take the following steps: 1. Start the new account setup process. To do this, click the Accounts link, click Set Up Accounts in the list of common tasks, and then click Add New Account. Money starts the New Account Setup Wizard and displays the first New Account dialog box (see Figure 9-1).

Figure 9-1

The first New Account dialog box.

2. Identify the lender. Name the lender in the first New Account Setup dialog box, as shown in Figure 9-1. To do this, enter the lender’s name in the Held At box. If the loan or liability isn’t with a specific financial institution, click the Not Held At A Bank, Broker, Or Other Financial Institution option button.

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3. Indicate that the account is a simple liability account. Click the Next button, and Money displays the second New Account dialog box (see Figure 9-2). Indicate that the account is a liability account by selecting the Liability entry in the list box.

Figure 9-2

The second New Account dialog box.

4. Name the new liability account. Click the Next button, and Money displays the third New Account dialog box. To name the new liability account, enter a description or name in the Name box. 5. Specify the account balance. Click the Next button, and Money displays the fourth New Account dialog box (see Figure 9-3). Enter a value for the current account balance in the How Much Do You Owe On This Account? box. Then confirm that the account currency shown in the What Is The Currency For This Account? box is correct. Then click the Finish button.

Figure 9-3

The fourth New Account dialog box. Managing Your Debts

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Setting Up an Amortizing Liability Account To set up an account for a debt that has amortizing loan payments, take the following steps: 1. Start the new account setup process. To do this, click the Accounts & Bills link, click Set Up Accounts in the list of common tasks, and then click Add New Account. Money starts the New Account Setup Wizard and displays the first New Account dialog box (see Figure 9-1). 2. Identify the financial institution. Name the lender in the first New Account Setup dialog box. To do this, enter the lender’s name in the Held At box. If the loan or liability isn’t with a specific financial institution, click the Not Held At A Bank, Broker, Or Other Financial Institution option button. 3. Identify the account as either a loan or mortgage account. Click the Next button, and Money displays the second New Account dialog box (see Figure 9-2). Select the Mortgage entry if you are setting up a home mortgage. Select the Loan entry if you are setting up a loan for some other type of debt. 4. Tell Money whether you are borrowing or lending. Click the Next button, and Money starts the New Loan Account Wizard. Click the Next button several times to move through the dialog boxes of introductory information. Eventually the New Loan Account Wizard asks whether you are borrowing or lending money (see Figure 9-4). Click the appropriate option button to answer.

Figure 9-4

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The New Loan Account Wizard asks whether you are borrowing or lending money.

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5. Name the loan. Click the Next button, and Money asks what you want to name the new loan account (see Figure 9-5). Enter a loan name in the Loan Name box, enter the lender name in the Make Payments To box, and confirm that the entry shown in the Currency box is correct.

Figure 9-5

The New Loan Account Wizard asks you to name the loan.

6. Indicate whether the loan is a fixed rate loan or an adjustable rate loan. Click the Next button, and Money asks whether the loan has a fixed interest rate or an adjustable interest rate. Click the appropriate option button to answer. 7. Tell Money whether you’ve made any payments yet. Click the Next button, and Money asks about any loan payments you might have already made for the loan (see Figure 9-6). Click the appropriate option button to answer.

Figure 9-6

The New Loan Account Wizard asks about payments you’ve already made on the loan. Managing Your Debts

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NOTE If you tell Money that you have made payments on the loan already, it displays another dialog box when you click the Next button. This dialog box asks whether you want to record all the payments that you have made on the loan or only the payments for the current year. Typically, you are interested in payments for the current year only. Click the appropriate option button to answer.

8. Provide the due date of the year’s first loan payment. Click the Next button twice to continue. If you indicated that you want to track payments for the current year, Money asks for the due date of the year’s first loan payment (see Figure 9-7). Enter the date in the typical mm/dd/yy date format, or click the box’s button to display a pop-up calendar.

Figure 9-7

The New Loan Account Wizard asks for the due date of the loan.

NOTE If you indicated that you want to track all the payments made for the loan, Money displays a different version of the dialog box shown in Figure 9-7. This different dialog box asks for the due date of the first payment.

9. Tell Money how frequently you make loan payments. Click the Next button, and Money asks how frequently you make your loan payments (see Figure 9-8). To describe the payment frequency, select the appropriate entry from the Paid How Often box.

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Figure 9-8

The New Loan Account Wizard asks about the frequency of the loan payments.

10. Tell Money how it should calculate interest. Click the Next button, and Money asks how it should calculate interest on the loan (see Figure 9-9). Money provides three different interest calculation methods from which to choose: based on the date a payment is due, based on the date the lender receives the payment, or twice a year using the Canadian mortgage method. Click the appropriate option button to answer. Refer to your loan documentation if you have questions about which method your lender uses.

Figure 9-9

The New Loan Account Wizard asks how the interest is calculated on the loan.

11. Provide the loan variables. Click the Next button, and Money asks you to record the loan amount, interest rate, loan length, payment, and balloon amount information about your loan (see Figure 9-10). Enter one of these amounts in the box at the top of the dialog box. (Figure 9-10 shows the Loan Amount box.) After you enter an amount, click the Next button and then enter the next loan variable. Managing Your Debts

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Figure 9-10 The New Loan Account Wizard asks you to enter several loan variables.

You can enter the value directly into the box by typing, or you can click the box’s button to display a pop-up calculator that you can use to enter the value. You need to enter only four of the five values. If there is one value you don’t know, leave it blank. Based on any four of the loan values, Money can calculate the fifth value. After Money calculates the fifth value, it displays a message box asking you to confirm the calculated value. 12. Choose a category for the loan interest. Click the Next button twice, and Money asks you to choose a category for the loan interest (see Figure 9-11). Enter the interest category in the first box and the subcategory in the second box.

Figure 9-11 The New Loan Account Wizard asks you to categorize the loan interest.

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NOTE Money’s standard Categories list includes categories and subcategories for tracking mortgage, car loan, and other loan interest amounts.

13. Specify whether the loan interest is tax deductible. Click the Next button, and Money asks whether the loan is a mortgage and whether interest on the loan is tax deductible. Click the appropriate option button to answer. Typically, mortgage interest used to purchase a primary or secondary residence is deductible. However, you should consult your tax advisor if you have questions about this. Some loans for investments are also tax deductible. Personal loans typically are not tax deductible. 14. Describe any other loan fees. Click the Next button, and Money asks about other fees you might pay (see Figure 9-12). Click the Other Fees button, and Money displays a dialog box in which you enter category, subcategory description, and amount information. (The Other Fees dialog box is the same one you use to split a transaction among various categories when you report a transaction directly into the account register.)

Figure 9-12 The New Loan Account Wizard asks you about other fees associated with the loan.

15. Tell Money whether or not you want to set up a scheduled payment. Click the Next button, and Money asks whether you want to set a scheduled payment for your new loan account (see Figure 9-13). If you do, click the Yes, Remind Me option button. Then enter the due date for the next loan payment and enter a bank account name in the appropriate boxes. If you don’t want to be reminded about a loan payment, click the No, Do Not Remind Me option button.

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Figure 9-13 The New Loan Account Wizard asks whether you want to set scheduled payments.

16. Review the loan account summary information period. Click the Next button, and Money displays a dialog box that you can use to confirm your information (see Figure 9-14). If you see an error, use the Back and Next buttons to move backward and forward through the New Loan Account dialog boxes to find the incorrect data so that you can edit it.

Figure 9-14

The New Loan Account Wizard dialog box you use to check your information.

17. Tell Money whether it should set up an associated asset for the loan. Click the Next button, and Money asks whether you want to set up an associated asset account (see Figure 9-15). For example, if you have just set up a home mortgage, you might also set up a house account. The house account—an asset account— tracks the value or any improvements you make to your home. Correspondingly, the mortgage account tracks the associated loan you used to purchase the asset.

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Click the appropriate option button to answer. If you click Yes, Money steps you through the process for setting up an asset account.

Figure 9-15 The New Loan Account Wizard asks whether you want to set up an associated asset account.

While it might seem like a good idea to create an asset account to track the value of the item you purchased using loan proceeds, it is probably not something you want to do. The more financial information that you decide to maintain using the Money program, the more complicated and time-consuming your record keeping becomes. Note, too, that recent changes in U.S. tax laws have essentially eliminated the justification for keeping track of the value of an item such as a home for most people. In the past, good record keeping of improvements made to a home might let you save on capital gains taxes associated with the sale of your home. Most current homeowners will never have to pay capital gains on the sale of their home, however. For single U.S. taxpayers, up to the first $250,000 of a capital gain on a residence is not taxed. For married taxpayers, up to the first $500,000 of a capital gain on a sale of a home is not taxed.

How do I handle an adjustable rate loan? Adjustable rate loans work in the same way as fixed rate loans, at least from Money’s perspective. However, you must identify an adjustable rate loan as such when you use the New Loan Account Wizard to set up the loan account. (See the preceding question-and-answer discussion.) When you do this, Money asks for the interest rate it should use to calculate the loan payment, and it asks for the length of time that the interest rate is valid. In essence, what you do is give the current loan interest rate and then indicate when it will change. Managing Your Debts

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To change a loan interest rate at the time of the adjustment, take the following steps: 1. Select the account. Click the Accounts & Bills link, select Account List, right-click the account, and then choose See Account Details from the shortcut menu. Money displays the Update Details window (see Figure 9-16).

Figure 9-16 The Update Details window.

2. Provide the date of the interest rate change. Click the Update Interest Rate button. When Money displays the Change Loan dialog box, enter the date of the new interest rate in the Effective Date box (see Figure 9-17).

Figure 9-17 The first Change Loan dialog box. 144

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3. Indicate whether the loan is a fixed rate or adjustable rate loan. Click the Next button, and Money asks whether the loan is a fixed rate loan or an adjustable rate loan. Click the appropriate option button to answer. 4. Indicate the length of time that the new interest rate will be in effect. Click the Next button, and Money asks when and for how long the next interest rate will be in effect. Enter the new date and period information using the appropriate boxes. 5. Provide either the new payment amount or the new interest rate. Click the Next button, and Money asks for the new payment amount (see Figure 9-18). Enter the new principal payment amount using the appropriate box. Or click the Next button to leave the new payment amount information blank and continue to the next dialog box (see Figure 9-19). Then enter the new interest rate in the appropriate box.

Figure 9-18 The fourth Change Loan dialog box.

Figure 9-19 The fifth Change Loan dialog box. Managing Your Debts

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NOTE Money calculates the variable that you don’t enter. If you supply the payment amount, Money calculates the interest rate. If you supply the interest rate, Money calculates the payment.

6. Review the loan summary. Click the Next button, and Money displays a dialog box that you can use to confirm that the loan payment and interest rate are correct (see Figure 9-20). If the information is correct, click the Finish button.

Figure 9-20 The sixth Change Loan dialog box

To make corrections, click the Back button to redisplay the dialog box in which you supplied the incorrect information.

What if I make a mistake in describing a loan? If you make a mistake in describing some loan term—and obviously this is easy to do given the volume of information you need to provide—you can correct it. To do this, click the Accounts & Bills link, select Account List, right-click the account you want to change, and choose See Account Details from the shortcut menu. Money then displays the Set Up Account window with the account information shown in detail. Make changes to any of the information by simply replacing the contents of the box. If you need to update a loan’s interest rate, click the Update Interest Rate button. Money then steps you through the process for updating the loan interest rate.

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If you want to change other loan terms besides the loan interest rate, click the Change Loan Terms button. When you click this button, Money, in effect, reruns the New Loan Setup Wizard—except that this time you don’t set up a new loan account, you just step through all the same questions you answered when you originally set up the loan account.

How do I record an amortizing loan payment? To record a regular loan or mortgage payment, you use the loan account register. When Money displays the account register for the loan or mortgage, record a loan payment transaction by taking the following steps: 1. Indicate that you want to record a new transaction. Click the New button, and Money asks whether or not you want to make a regular loan payment or an extra loan payment (see Figure 9-21). Assuming that you want to make a regular loan payment, click the Make A Regular Loan Payment option button and then click the OK button.

Figure 9-21 The dialog box that Money uses to ask about the new loan transaction.

NOTE If you enter an extra payment for another payment, Money assumes that the entire payment amount goes to reducing principal. In this case, therefore, Money doesn’t split the payment amount between interest, principal, and other fees.

2. Review the loan payment information. When Money displays the Edit Transaction dialog box, which summarizes the loan principal and interest payment that Money is about to enter in the loan account register, review this information (see Figure 9-22). Assuming that the loan transaction is correct, click the OK button.

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Figure 9-22 The Edit Transaction dialog box.

NOTE You don’t have to categorize the loan payment. Money automatically calculates the loan payment amount and correctly categorizes the payment amount into loan interest, loan principal, and any other fees, based on the information you entered when you originally set up the account.

How do I record a simple liability payment? When you make a payment on a simple liability account—this is a liability account type, not a loan account or mortgage account—all you do is transfer money from one account to another. If you want to pay $100 of a liability account by writing a check on your regular checking account, for example, simply record the check you are writing in the usual way and then, rather than categorizing the check, transfer the amount from your checking account to the liability account. This transfer of funds decreases your checking account balance, and at the same time it decreases, or pays down, the liability account balance.

How do I adjust the principal and interest breakdown if Money’ Money’ss calculation is incorrect? It is possible that the breakdown of a payment into principal and interest that Money makes will be incorrect. Rounding errors, payment delays, and perhaps even a bug in either Money’s or the bank’s calculations may mean that the loan balance that Money shows for a loan or mortgage is incorrect. When the ending balance that Money shows is incorrect, it simply means that Money has incorrectly split one or more loan payments between principal and interest. What you need to do, in this case, is adjust the ending balance and categorize the adjustment as falling into the same interest expense category and subcategory as you are using to track the interest component of the loan payment. 148

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To make this sort of adjustment, display the account register for the loan or mortgage that you need to adjust. Then click Update Amount Owed in the list of common tasks. Money then displays the Adjust Loan Balances dialog box (see Figure 9-23).

Figure 9-23 The Adjust Loan Balances dialog box.

To adjust, or correct, the loan balance, enter the correct ending balance in the New Ending Balance box and the ending balance date in the As Of Date box. You should be able to get this information from the end-of-year or end-of-month loan statement that alerted you to the loan balance error. To fix the interest portion of the loan record-keeping error, enter the interest category and subcategory you used in the Category For Adjustment boxes. For example, if you used Loan as the category and Mortgage Interest as the subcategory, enter this category and subcategory in the two boxes. While it might seem curious to use the loan interest categories for categorizing an adjustment to the loan balance, remember that loan payments are split between principal and interest. Therefore, if you overstate the principal components of a loan payment, you implicitly understate the interest components—and vice versa. In effect, adjusting the loan ending balance is the same thing as adjusting the cumulative principal payments made on the loan. And that means you need to also adjust cumulative interest payments made on the loan.

Can I use Money’ Money’ss loan interest summary on my tax return? You really shouldn’t use the loan interest expense numbers from Money on your tax returns. At the end of the year, lenders will provide you with a 1098 statement that summarizes the interest you have paid. If that interest is tax deductible and if you itemize your tax deductions, use that number on the Schedule A form of your tax return.

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The number shown on your 1098 statement is the one the Internal Revenue Service (IRS) gets. Therefore, you want to make sure that your return’s loan interest numbers agree with the values already known by the IRS.

How do I handle property tax, escrow collections, and disbursements? Property tax escrow accounts amount to savings accounts that your lender forces you to keep. With every regular loan payment, the lender typically collects money and places it in this special savings account. Then, perhaps twice a year, the lender disburses money from this escrow account to pay property taxes and possibly homeowners insurance premiums. Some people think that they need to keep track of the balance in this special account and the disbursements made from the escrow account because property tax disbursements may be required to accurately prepare your annual income tax return. However, you don’t need to track your escrow account. The reason you can skip this work—and simplify your record keeping—is that you can get this information from your annual loan mortgage statement.

How do I prepare a loan amortization schedule? Money creates and maintains a loan amortization schedule for any loan account or mortgage account you set up. To view this loan amortization schedule, first display the loan or mortgage account register. Click Analyze Loan in the list of common tasks, and then click View Loan Amortization Schedule. When you do this, Money displays a Loan Amortization window detailing the loan from the register (see Figure 9-24). This schedule shows payment dates and amounts, the principal and interest component of each payment, and the end of payment period balance.

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Figure 9-24 The Loan Amortization window.

When does it make sense to refinance a loan? The Money program includes a Loan Planner Worksheet you can use to consider refinancing your mortgage. To use this worksheet, first display the account register for your mortgage loan. Click Analyze Loan in the list of common tasks, and then click Consider Financing. This starts the Loan Planner Worksheet. To use the worksheet, simply follow the on-screen instructions. While the Loan Planner Worksheet can provide helpful insights to you as you consider the question of refinancing, let me also give you three useful rules of thumb to help you make sense of refinancing. These rules of thumb may even save you from the trouble of working through the Loan Planner Worksheet’s analysis. The first point you need to understand when you consider refinancing a loan is that you really want to use refinancing, at least in terms of economics, as a way to reduce the total interest cost you pay. While that sounds simple in principle, it is actually very difficult to do. The interest costs you pay are a function of the interest rate, the loan balance, and the loan term period. When people refinance, they tend to focus solely on the loan interest rate. But they often don’t pay as much attention to the loan term or the loan balance. This is important. When you use refinancing—even refinancing at a lower interest rate—to increase your borrowing or to extend the time over which you borrow, you often aren’t saving money.

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A second point to consider about refinancing is this: For refinancing to make economic sense, you need to swap higher interest rate debt for lower interest rate debt. This calculation, however, is tricky. To make an apples-to-apples comparison, you must look at the annual percentage rate that will be charged on your new loan—this is the best measure of the new loan’s interest rate cost—and then compare this to the loan interest rate on your old loan. You don’t want to compare interest rates on the two loans nor do you want to compare annual percentage rates on the two loans. You want to compare the loan interest rate on the old loan to the annual percentage rate on the new loan. When the annual percentage rate on the new loan is lower than the loan interest rate on the old loan, then you are truly paying a lower interest rate. NOTE Comparing annual percentage rates with loan interest rates seems confusing at first. But note that you would pay only interest on your old or current loan, so that’s all you need to look at in terms of its costs. With a new loan, however, you would pay both interest and any origination or closing cost fees. The annual percentage rate wraps interest rate charges and setup charges, origination charges, and closing cost fees into one interest rate-like number.

The third point to consider is to be careful not to extend the length of time you borrow by continually refinancing. For example, one common rule of thumb states that every time interest rates drop by two percentage points, you should refinance your mortgage. However, there have been times in recent history when following this rule would have had you refinancing your mortgage every few years. This could mean that you would never get your mortgage paid off. If you refinanced every few years, you would suddenly find yourself still thirty years away from having your mortgage paid.

When does it make sense to pay of offf a mortgage early? Early mortgage repayment looks on paper at least like a wonderful deal. If you have a typical mortgage—say, a mortgage that’s $100,000—and you are near the beginning of the mortgage term and make an extra $25 a month in principal payments, you could potentially save $25,000 in interest over the life of the loan. NOTE The exact amount of early repayment savings depends on the loan, but in general, the apparent savings are astounding.

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In spite of the superficial profit that seems to come from early mortgage repayment, it’s often not a good decision. The tragedy here is if you would have used that $25 a month to boost your individual retirement account, or IRA, contribution, you would end up with $50,000 in your IRA. If you would have used the $25 a month to make extra contributions to your employer’s 401(k) plan, you might have easily ended up with $75,000 in a 401(k) account. The reason for these discrepancies is simple. In effect, when you calculate the interest you save by early mortgage repayment, or the interest you make by investing in an IRA or a 401(k), you are making a compound interest calculation. Any time you compound interest over long periods of time, the numbers eventually grow large. But the most important factor driving the interest rate compounding calculation is the interest rate. The larger the interest rate, the faster the compounding and ultimately the larger the final value. Therefore, if you can prepay a mortgage that charges 6 percent but invest in an IRA or 401(k) account that will pay 8 percent, mortgage repayment is actually a terrible idea. And, unfortunately, very small differences in interest rates ultimately produce very large differences in the final compounded values. Although early mortgage repayment is a technique that many financial writers who don’t know better recommend, you are typically better off using the money you would have used for early mortgage repayment for additional IRA or 401(k) contributions. The one scenario in which you could save money through early mortgage repayment is when you have already taken maximum advantage of these other investment choices and are still looking for some other place to “save” additional money.

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Chapter 10

INVESTING IN MUTUAL FUNDS

Questions Answered in This Chapter • When should I keep financial records for mutual funds? • How do I set up a mutual fund account? • How do I record additional purchases? • How do I record income or capital gains? • How do I record income, dividend, or capital gain amounts reinvested? • How do I update mutual fund share price information? • How do I record the sale of mutual fund shares? • When do I use the other investment activities? • How do I get good investment account summary information? • Can Money help me pick a mutual fund? Microsoft Money 2001 provides convenient, and relatively easy-to-use tools for keeping records of your mutual fund investments. This chapter answers the most common questions you might have about mutual funds record keeping—and discusses a few issues you might not have even thought of.

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When should I keep financial records for mutual funds? While you might assume any mutual fund investor should use Money’s mutual fund record-keeping tools, that isn’t the case. Because investment record keeping, including mutual fund record keeping, requires significant work and involves complexity, you need to make sure the effort is worth it. In general, you keep investment records for any of the following reasons: • You want to track interest and dividend income. • You want to track realized and unrealized capital gains and losses. • You want to measure or grade the profitability of an investment by calculating its annual return or yield. Obviously, all three of the tasks in this list sound worthwhile, but many investors won’t need to use Money’s record-keeping tools to get this sort of information.

Tracking Investment Income If your investing is done using tax-deferred accounts, such as individual retirement accounts, 401(k)s, and other similar investment containers, you don’t need to track the investment’s income. The income from tax-deferred investments stored is not currently taxable. The money you contribute to one of these tax-deferred accounts can be counted as a deduction when the money is transferred into the account. Any money you ultimately withdraw from one of these accounts can be counted as income when you move money out of the account and into your regular checking account. For example, if you contribute money to an individual retirement account by writing a check on your regular bank account, you can categorize the check as “IRA contribution” when you write the check. This categorization lets you easily track the IRA contribution deduction you will need to report on your tax return. Similarly, if you withdraw money from an IRA account, all you need to do is categorize the deposit as IRA income. This lets you keep track of the IRA withdrawals you will also need to report on your tax return.

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Tracking Capital Gains As mentioned earlier, realized and unrealized capital gains are often the second reason for using Money for investment record keeping. In the case of a regular taxable investment account, any time you buy and then later sell an investment, you experience a capital gain or loss that needs to be reported on your tax return. Because capital gains and losses are important for your tax return, when you keep records of taxable investments you want to track these items. You even want to track potential, or unrealized, capital gains and losses. However, while tracking unrealized and realized capital gains and losses is important for taxable investment accounts, you don’t need to do this for tax-deferred investment accounts like individual retirement accounts and 401(k) accounts. The reason is simple. For tax-deferred investment accounts, gains and losses aren’t taxable. Just as is the case with investment income, inside a tax-deferred investment account, gains and losses have no effect on taxable income. Again, the only tax effect comes from money you move into and out of the account. In general, money you move into the account is a deduction for purposes of calculating your taxable income. Money you move out of your account is an income amount for purposes of calculating your income tax return. NOTE The general rule described in the preceding paragraph—that money moved into and out of a tax-deferred investment account is what produces a tax deduction or taxable income amount—is true. However, predictably, some taxdeferred investment accounts don’t work this way. There are, for example, nondeductible IRAs. A nondeductible IRA doesn’t give the taxpayer a deduction merely for moving money into the account. Also, a Roth IRA doesn’t actually produce any taxable income just because you move money out of the account. The primary benefit of a Roth IRA is that you get to withdraw money from the IRA without including the withdrawal on your tax return. However, in spite of the fact that money moved into or out of certain types of IRAs doesn’t trigger a tax deduction or taxable income, the general rules described here still apply. Even for nondeductible IRAs or Roth IRAs, you don’t need to track investment income, dividend income, capital gains, and capital losses for tax record keeping using Money.

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Measuring Investment Performance As identified earlier, the third reason for investment record keeping concerns investment performance measurement. In general, one of the things you want to do when you become serious about your investing is calculate how good or how bad an investment performs. Complete and accurate investment records force you to honestly evaluate your investing. One of the ways you measure investment performance is by calculating the annual return, or yield, produced by the investment. For example, if you buy a stock for $12 a share and later sell it for $18 a share, you should calculate the annual return on the stock. An annual return, or yield, resembles an interest rate. By comparing the return a stock earns to the return provided by other investments, you gain a frame of reference and get a better idea of whether a particular investment makes sense. While calculating returns obviously makes sense, note that one of the tasks your mutual funds management company does is calculate annual returns. Therefore, you don’t need to duplicate this effort. In effect, one of the services you are already paying the mutual funds management company for is the calculation of this important performance measure. NOTE Mutual fund management companies calculate returns on an annual basis— typically using the calendar year as the period for which returns are calculated. Your investment holding period may not match the period for which the return was calculated. For example, if you hold an investment for one year but your year runs from July 1 to June 30, a return measure provided by the mutual fund company may not be useful if the return is from January 1 to December 31. Nevertheless, if you use the prudent mutual fund investment strategy—which is simply to invest for longer periods, to buy and then hold—the mutual fund management company’s performance measurements do give you the information you need.

How do I set up a mutual fund account? Before you can begin keeping records for a mutual fund investment using Money, you need to first set up a mutual fund investment account. To do this, take the following steps:

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1. Display the list of accounts. Click the Investing link at the top of the screen, and then select Investing Center. Money displays the Manage Your Investments And Savings window. 2. Tell Money you want to set up a new account. To set up a new account, click the Create A New Investment Account link. When you do this, Money starts the new account setup process and displays the first New Account dialog box (see Figure 10-1).

Figure 10-1 The first New Account dialog box.

3. Name the financial institution that holds the mutual fund investment. Identify the mutual fund company by typing the company’s name in the box or selecting the name from the list box. Click the Next button to continue. Money may display a list of financial institution names similar to the one you entered. If you see the full name of the financial institution listed, click it to select it. Then click the Next button again. 4. Tell Money you are setting up an investment account. When Money displays the second New Account dialog box, select Investment from the list box (see Figure 10-2). Click the Next button.

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Figure 10-2 The second New Account dialog box.

NOTE Some financial institutions provide an online account setup feature that Money can use to set up your account. If this is the case with the financial institution that you’ve selected, Money tells you so and provides instructions about how to complete the online account setup process.

5. Identify the account name and currency. When Money displays the third New Account dialog box, enter a name for the account in the Name box (see Figure 10-3). This is the name you will use in Money to refer to the account. Also confirm that the Currency box shows the correct currency for the account. Money assumes the investment account currency is your default, or main, currency.

Figure 10-3 The third New Account dialog box.

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Money also asks about the taxation of the investment account. Click one of the What’s The Tax Status option buttons to indicate whether the investment account is taxable or tax deferred. 6. Describe the investments you have already made. When Money asks whether you want to add investments to the account, click the Yes, I’ll Add Investments Now option button (see Figure 10-4). Then click the Next button.

Figure 10-4 The fourth New Account dialog box.

7. Name the investment. Type the mutual fund name in the Investment Name list box (see Figure 10-5). For example, if the name of the mutual fund is Index 500, you might choose this as the mutual fund’s investment name. Then click the Next button.

Figure 10-5 The New Investment dialog box.

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8. Identify the investment as a mutual fund. When Money asks what type of an investment you are adding to the account, select Mutual Fund (see Figure 10-6). Then click the Next button.

Figure 10-6 The Create New Investment dialog box.

9. Describe the new mutual fund. Use the New Mutual Fund dialog box to more fully describe the mutual fund investment (see Figure 10-7). Enter the mutual fund’s name in the Name box. If you know the symbol for the mutual fund, enter it in the Symbol box. (You don’t have to record the mutual fund symbol here, but doing so lets you retrieve updated share price information over the Internet.) Select a country from the Country list box to describe where the mutual fund invests. If you indicate a European country, use the Euro check box to specify whether the mutual fund’s currency uses the new euro. Finally, select the Status check box if the mutual fund investment income is exempt from taxation. (Mutual funds that exist in bonds issued by state and local government agencies are often exempt from federal income taxes.) When you finish describing the new mutual fund, click the Finish button.

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Figure 10-7 The New Mutual Fund dialog box.

10. Describe each of the investments you have made in the mutual fund. Describe each of the investments you have made in the mutual fund using the New Investment dialog box (see Figure 10-8). To describe an investment, enter the number of shares purchased and the investment purchase date in the Date Acquired box. Enter the price per share you paid in the Price box. If you paid a commission or fee to purchase the investment, record this amount in the Commission/Fee box.

Figure 10-8 The second New Investment dialog box.

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After describing your first purchase of a mutual fund, click the Next button. Money then asks whether you want to add another investment to the account (see Figure 10-9). Typically, you will. If so, click the Yes option button and then click the Next button. Money then asks you to name the investment for which you want to record a purchase using the dialog box shown in Figure 10-7. This time Money lists the mutual fund name in the Investment Fund list box. Select the mutual fund from the Investment Fund list box, and then click the Next button. Money then redisplays the New Investment dialog box shown in Figure 10-8. Use it to record subsequent purchases of the mutual fund. Then click the Next button.

Figure 10-9 The third New Investment dialog box.

NOTE You need to describe each investment purchase you make separately. This means you will actually need to record several, perhaps numerous investments into the mutual fund. For example, the first money you invested is a purchase. So it needs to be described separately using the New Investment dialog box, as shown in Figure 10-8. In addition, if you have chosen to reinvest quarterly distributions from the mutual fund, each of these quarterly reinvestments is a separate purchase. This means, unfortunately, that if you have had a mutual fund for several years and you have been reinvesting, you may have dozens of investments to record. You do need to record these investments. The reason is that for tax purposes each of these investments needs to be separately tracked in order to most accurately calculate any future capital gains or losses.

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11. Tell Money when you are finished describing investments. After you describe all the investment purchases for the mutual fund investment account, click the No option button when Money displays the dialog box shown in Figure 10-9. Money then displays a final New Account dialog box that tells you you’re finished. To complete the process, simply click the Finish button. At this point, you have set up the investment account and you have recorded the investment purchases made to date.

How do I record additional purchases? To record additional purchases of a mutual fund account, take the following steps: 1. Display the investment account register. Click the Accounts & Bills link, and then select Account List so that Money displays the Pick An Account To Use window. Then click the investment account. Money displays the account register for the mutual fund (see Figure 10-10).

Figure 10-10

An investment account register.

2. Tell Money you want to record a purchase. To indicate that you want to record the purchase of additional mutual fund shares, click the Investment Transactions link. Money then adds the transaction entry area to the bottom of the account register. To record a new transaction, click the New button. Money then opens up boxes, or fields, in the transaction entry area that you can use to record the purchase (see Figure 10-11).

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Figure 10-11 The investment account register with the transaction entry area boxes open.

3. Describe the investment purchase date. Enter the purchase date in the Date box. Enter the date directly into the box, or click the box’s button to display a pop-up calendar that you can use to pick a date. 4. Identify the mutual fund investment. Click the Investment box’s button, and select the mutual fund you are purchasing from the list of mutual funds. 5. Identify the transaction as a purchase. To do this, click the Activity box’s button and select Buy from the list of typical investment transactions. Money then adds several additional boxes to the transaction entry area. 6. Identify what money you are using for the purchase. Use the Transfer From box to identify the account you are using to purchase the shares. For example, if you are going to write a check to purchase additional shares, name your checking account here. 7. (Optional) Provide a memo description. Describe the transaction in the Memo box. For example, you might want to describe why you are investing the money or perhaps note the specific source of the funds.

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8. Describe the number of shares purchased. Enter the number of mutual fund shares you’ve purchased in the Quantity box. 9. Indicate the price you paid per share. Enter the exact price you paid for each share in the Price box. NOTE You can describe prices using either decimal value or fractions. For example, you can enter the price $10 and an eighth of a dollar either as 10.125 or as 10 1/8. Money understands both decimal and fractional prices.

10. Describe the commission. Enter any commission you paid in the Commission box. Click the Commission box’s button to display a pop-up calendar you can use to calculate the commission. 11. Confirm the total purchase amount. After you have entered the quantity, price, and commission amounts, Money calculates the total purchase amount. Confirm that the total purchase amount agrees with whatever your mutual fund company reports on the confirmation statement. NOTE Money will calculate any one of the following four variables based on the other three: quantity, price, commission, and total. You can leave any one of these blank, and as long as you enter the other three, Money calculates the missing piece of data. While the preceding set of instructions describes entering the quantity, price, and commission amounts and then assumes you let Money calculate the total, you may also want to enter the quantity, commission, and total amounts and let Money instead calculate the price. This approach sometimes works better when your mutual fund company keeps more precise records of fractional shares than does the Money program.

12. Record the purchase in the register. After you describe the purchase of shares, click the Enter button. Money records the purchase transaction in the investment account register (see Figure 10-12).

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Figure 10-12 An investment account register with a purchase transaction.

How do I record income or capital gains? To record investment income such as dividend or interest income, or a capital gain distribution made by the mutual fund company, take the following steps: 1. Display the investment account register. Click the Accounts & Bills link, and then select Account List so that Money displays the Pick An Account To Use window. Then click the investment account. Money displays the account register for the mutual fund. 2. Tell Money you want to record a purchase. To indicate that you want to record the purchase of additional mutual funds shares, click the Investment Transactions link. Money then adds the transaction entry area to the bottom of the account register. To record a new transaction, click the New button. 3. Describe the date the income or gain is received. Enter the date on which the income is received or the capital gain distribution is made in the Date box. Enter the date directly into the Date box, or click the Date box’s button to display a pop-up calendar that you can use.

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4. Name the mutual fund. Click the Investment box’s button, and then select the mutual fund from the list of mutual fund investments. 5. Specify the transaction as an income or capital gain transaction. To identify the transaction you are entering as an income or capital gain transaction, click the Activity box’s button and select the appropriate activity from the list box. If you are recording interest, select Interest. If you are recording a dividend, select Dividend. If you are recording short-term capital gains, mid-term capital gains, or long-term capital gains, select one of these items. NOTE Don’t select any activity that references reinvestment of interest, dividend, or capital gain amounts unless you are reinvesting the monies received. The next question-and-answer discussion describes the steps for recording reinvestment transactions.

6. Identify the account into which you will deposit the money. To do this, click the Transfer To box’s button and then select the account into which you will deposit the interest, dividend, or capital gain check from the list of accounts. 7. (Optional) Describe the deposit in more detail. Describe the interest, dividend, or capital gain transaction in more detail in the Memo box. You might identify the amount as a quarterly distribution, for example. Or, you might identify the reason for depositing the money in a particular account. 8. Specify the income amount. Specify the amount of interest, dividend, or capital gains received in the Total box. Enter an amount directly into the Total box, or click the box’s button to display a pop-up calculator that you can use to calculate or enter an amount. 9. Record the transaction in the register. After you have described the interest, dividend, or capital gain transaction in detail, click the Enter button. Money records the transaction in the investment account register and the transfer account register (see Figure 10-13).

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Figure 10-13 An investment account register with an income transaction.

NOTE Interest, dividends, and capital gains transactions for a mutual fund appear in the investment account register, but don’t actually affect either the number of shares held or the account value amounts. These transactions belong in the mutual fund’s investment account register because they stem from the mutual fund investment, but the amounts appear only in the Transfer To account.

How do I record income, dividend, or capital gain amounts reinvested? You need to record any reinvestments of interest income, dividend income, or capital gain distributions. Fortunately, as long as you have the reinvestment transaction information from the mutual fund company—this probably comes on the monthly statement—these transactions are not difficult to record. Specifically, take the following steps: 1. Display the investment account register. Click the Accounts & Bills link, and then select Account List so that Money displays the Pick An Account To Use window. Then click the investment account. Money displays the account register for the mutual fund.

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2. Tell Money you want to record a purchase. To indicate that you want to record the purchase of additional mutual fund shares, click the Investment Transactions link. Money then adds the transaction entry area to the bottom of the account register. To record a new transaction, click the New button. 3. Describe the date the income or gain is received. Enter the date on which the income is received or the capital gain distribution is made in the Date box. Enter the date directly into the Date box, or click the Date box’s button to display the pop-up calendar. 4. Name the mutual fund. Click the Investment box’s button, and select the mutual fund name from the list of mutual fund investments. 5. Identify the transaction as a reinvestment. Click the Activity box’s button, and then select the appropriate reinvestment description from the list of investment transactions. For example, if you are recording the reinvestment of a dividend, select Reinvest Dividend. If you are recording the reinvestment of interest income, select Reinvest Interest. If you are recording the reinvestment of short-term capital gains, mid-term capital gains, or long-term capital gains, select the appropriate capital gain reinvestment activity. 6. (Optional) Provide a memo description. Describe additional information related to the reinvestment in the Memo box. Often this won’t be necessary. 7. Describe the number of shares purchased by reinvesting. Click the Quantity box’s button, and then enter the number of shares shown on the monthly statement that records the reinvestment transaction. 8. Identify the price paid. Enter the mutual fund share price in the Price box. You can enter mutual fund share prices using either decimal or fractional share prices. For example, you could enter the share price as 10.125 or 10 1/8.

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9. Describe any commission paid. Enter the commission or fee you paid in the Commission box. Click the Commission box’s button to display a pop-up calculator you can use to calculate the commission. NOTE Most mutual funds don’t require you to pay a commission simply for reinvesting interest, dividend, or capital gain amounts. If your mutual fund charges you such a commission, you may want to look at moving your money to another mutual fund management company where you don’t pay for this transaction.

10. Confirm the total transaction amount. After you enter the quantity, price, and commission information, Money calculates the total reinvestment amount and displays this value in the Total box. Confirm that the total reinvestment transaction amount is correct. NOTE As mentioned earlier, Money will calculate any one of the following four variables given the other three: quantity, price, commission, and total. You want the quantity and total amounts to be precise. Ideally, you also want the price amount to be correct, although this is less important. What you may want to do, if you have rounding troubles—this occurs when the mutual fund company keeps more precise records of data such as fractional shares than does Money— is have Money calculate the least important yield or value. You might, for example, choose to have Money calculate a commission—but the commission would really equal the rounding amount.

11. Record the reinvestment transaction. After you have correctly described reinvestment of interest, dividend, or capital gains, click the Enter button. Money records the reinvestment transactions in the investment account register (see Figure 10-14).

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Figure 10-14 An investment account register with a reinvestment transaction.

NOTE Typically, you will record several reinvestment transactions at one time. For example, at the end of the year, your mutual fund company may report and distribute interest, dividend, short-term capital gain, and long-term capital gain amounts and reinvestments. In this case, you would need to record four separate reinvestment transactions, assuming you reinvested interest, dividend, short-term capital gain, and long-term capital gain amounts.

How do I update mutual fund share price information? You can update mutual fund share prices in three ways. First, you can simply record a new transaction. Whenever you record a new mutual fund investment transaction— perhaps it is a recent purchase of new shares or the reinvestment of some recent distribution—Money gets a new share price as part of the information you enter. Money uses the most recent share price to estimate the value of shares in the account. From that point forward, Money uses that share price in its estimates of the mutual fund account value.

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Second, you can get updated share price information over the Internet. If your computer connects to the Internet and if you provided the mutual fund’s security symbol when you set it up, click Update Price link in the investment account register. Then choose Update Price Online from the submenu, and Money initiates a connection to the Internet and retrieves updated mutual fund share price information. Third, you can update share prices manually. To do this, click the Update Price link in the investment account register. Then choose Update Price Manually from the submenu, and Money displays the Update Price dialog box (see Figure 10-15).

Figure 10-15

The Update Price dialog box.

To use the Update Price dialog box, name the mutual fund investment using the Investment box. Then enter the date for which you have a share price in the Date box and the updated market price in the Price box. Then click the Update button. Money adds the new price information to the list box shown in the bottom portion of the Update Price dialog box. NOTE If you enter an incorrect mutual fund share price, you can remove it. To do so, click the incorrect share price to select it and then click the Delete button.

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How do I record the sale of mutual fund shares? You can record the sale of mutual fund shares using a set of steps that closely resemble those used to purchase shares. Specifically, take the following steps: 1. Display the investment account register. Click the Accounts & Bills link, and then select Account List so that Money displays the Pick An Account To Use window. Then click the investment account. Money displays the account register for the mutual fund. 2. Tell Money you want to record a sale. To indicate that you want to record the sale of mutual fund shares, click the Investment Transactions link in the account register. When you do, Money adds the transaction entry area to the bottom of the account register. To record a new transaction, click the New button. Money then opens boxes, or fields, in the transaction entry area that you use to record the sale. 3. Describe the investment sale date. Enter the sale date in the Date box. Enter the date directly into the box, or click the box’s button to display a pop-up calendar that you can use to pick the date. 4. Identify the mutual fund investment. To do this, click the Investment box’s button and select the fund you are selling from its list of mutual funds. 5. Identify the transaction as a sale. To do this, click the Activity box’s button and select Sell from the list of investment transactions. Money then adds several additional boxes to the transaction entry area. 6. Identify the account into which you will deposit the sales proceeds. Click the Transfer To box’s button, and select the account you want to use from the list of accounts. 7. (Optional) Provide a memo description. Describe additional information about the sales transaction in the Memo box. For example, you might want to identify the reason for the sale or the planned use of the money.

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8. Specify the quantity of shares sold. Enter the number of shares sold in the Quantity box. 9. Specify the price for which shares were sold. Enter the price you received per share in the Price box. As noted earlier, you can enter share prices using either decimal values or fractional values. 10. Record any commission paid. If you paid a commission to sell shares of the mutual fund, record this fee in the Commission box. 11. Confirm the total sales proceeds. After you have entered the quantity, price, and commission information, Money calculates the total sales proceeds and places this value in the Total box. Confirm that the total amount that Money calculates agrees with whatever the mutual fund company reports on its statement. NOTE As mentioned earlier, Money will calculate any one of the following four variables based on the other three: quantity, price, commission, and total. Your total amount needs to be correct, since this amount gets recorded both in the investment register and in the transfer account register. For this reason, you may want to have Money calculate the commission based on the quantity, price, and total information so that your capital gain calculation and your transfer totals will be correct. You, in effect, use the commission amount to adjust for any rounding errors.

12. Record the shares in the register. After you have correctly and completely described the sales transaction, click the Enter button. If you purchased multiple lots of a mutual fund—this means you purchased shares more than once and possibly at different prices—Money displays the What Shares Should I Use dialog box (see Figure 10-16). The What Shares Should I Use dialog box lets you choose which shares Money assumes you are selling.

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Figure 10-16 The What Shares Should I Use dialog box.

By default, Money uses a first-in, first-out (FIFO) assumption. FIFO means that Money assumes you are selling the oldest shares you own. Because share prices rise over time, FIFO typically results in the largest possible capital gain. You can also specify that you want to specifically identify the shares that you are selling. To do this, click the I Would Like To Specify Which Shares To Use In This Transaction option button. Money then displays the Allocate Lots dialog box (see Figure 10-17). This dialog box lets you pick which shares you are selling, and thereby manipulates the gain or loss you report on your next tax return.

Figure 10-17

The Allocate Lots dialog box. Investing in Mutual Funds

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To minimize the capital gain, click the Minimum Gain button. To maximize your gain—do this if you know the maximum gain will produce no adverse tax affect—click the Maximum Gain button. After you specify which shares you want to sell, click the Finish button. Money then records the transaction in its register—based on the shares you have told it to sell.

When do I use the other investment activities? Money displays several other investment activities when you open the Activity list box. Most of these other activities, or transaction types, don’t come into play in the case of a mutual fund. Because some mutual funds generate unusual transactions, however, each of the other investment activities listed are briefly described.

Using Other Income The Other Income investment activity lets you record income that is not interest income, not dividend income, and not any form of capital gain. In general, you don’t need to worry about determining whether some income amount recorded on a mutual fund statement is other income. The mutual fund statement should show you plainly and clearly that this is the case.

Using Other Expense The Other Expense activity lets you record expenses for a mutual fund investment that need to be used for calculating your taxable income. In some cases, for example, a mutual fund may produce expenses that you will want to know about and track for your tax return. If a mutual fund is a taxable investment, and it is investing in shares of foreign companies, the mutual fund company may pay foreign income taxes. Foreign income taxes may be recorded on your tax return as a credit.

Using Return of Capital Return of capital transactions occurs when a mutual fund company returns part of the sales price you paid earlier. This sounds funny, but it occurs automatically in several types of mutual funds. For example, if you buy shares in a mutual fund that invests in amortizing bonds—amortizing bonds are those in which the borrower automatically pays some of the principal back to the lender—the mutual fund company returns the principal payments to the mutual fund shareholders. This is a return of capital transaction. 178

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In general, however, the Return Of Capital activity is something you don’t need to worry about. If a mutual fund transaction includes a return of capital, the mutual fund statement will clearly identify this case.

Using Add Shares and Remove Shares The Add Shares investment activity lets you add shares to an investment account without affecting a transfer account. You use this investment activity only if you set up a new mutual fund account and don’t describe your past purchases as part of the new account setup. NOTE Earlier in this chapter, we described how you identify these past purchases during the mutual fund account setup. You don’t need to worry about Add Shares investment activity if you followed instructions.

The Remove Shares investment activity lets you remove shares from an investment account without affecting other accounts, such as the Transfer To account. You typically don’t use this investment activity to record current share sale or purchase activity.

Using Sale Short and Cover Short The Sale Short investment activity doesn’t apply to the case of mutual fund transactions, unless for some reason you were shorting shares of mutual funds. The Cover Short investment activity lets you describe the option of covering a short position you have created by previously selling short shares.

Using T ransfer In and T ransfer Out Transfer Transfer The Transfer In investment activity lets you move money into the cash account associated with an investment account. Typically, mutual fund investment accounts don’t have an associated cash account. Associated cash accounts come into play in the case of brokerage accounts in which you are buying and selling securities and then moving the money into or out of a cash, or holding, account. The Transfer Out investment activity lets you move money out of an associated cash account. Again, predictably, mutual fund investment accounts don’t need associated cash accounts, so this wouldn’t apply to mutual fund record keeping.

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Using T ransfer In Short and T ransfer Out Short Transfer Transfer The Transfer In Short investment activity relates to short sale transactions—typically for regular brokerage investment accounts. This investment activity usually doesn’t come into play for mutual fund investment accounts. The Transfer Out Short investment activity, predictably, relates to the case in which you are moving money out of an associate cash account as part of the short sale transaction. Again, it doesn’t come into play in the case of a mutual fund investment account.

How do I get good investment account summary information? This chapter’s previous question-and-answer discussions focused on the record keeping for mutual funds. Yet it’s equally important to monitor your investments. Fortunately, Money provides great tools to help you monitor the investments you have made in mutual funds. One of the convenient ways to see how your investments are performing and what condition they are in is simply to display the account summary for a mutual fund investment account. To do this, first display the Pick An Account To Use window by clicking the Accounts & Bills link and then selecting Account List. Then click the link that points to the investment account you want to examine in more detail. When you do this, Money displays the Holdings window for the investment account you selected. Figure 10-18 shows how this window looks in the case of a mutual fund investment. Note that the window provides good summary information, including the last transaction involving the mutual fund, the most recent price, the amount you have invested (this is the cost basis), the market value based on the most current share price, and the unrealized capital gains for the investment. (An unrealized capital gain is just a capital gain that you will experience if you sell the investment at the current price. Unrealized capital gains give you some idea of how much money you’ve made thus far in an investment—and it also gives you an idea of what gains you need to report on your tax return if you sold the investment and the investment is in a taxable account.)

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Figure 10-18 The Holdings window.

If you click the Portfolio button, Money displays summary information about all your investment accounts and, if you have an Internet connection, information about the financial markets using the Portfolio window. In the Portfolio window, Money includes a See Different View link in the list of common tasks. Click this link to display a menu of different views you can use to examine your investment information. About a dozen views are available. Experimenting with them will allow you to determine which are most useful for your investing. The Portfolio window also supplies an Analyze My Portfolio link in the other tasks area along the left edge of the window. When you click this link, Money displays a menu of commands that let you look at your investments as a group. This menu, for example, includes a command you can use to review your asset allocation, your unrealized capital gains, and a list of investment reports you can produce based on the information you have collected using the investment account registers. NOTE Asset allocation refers to the percentages of your portfolio that you have invested in different classes of different investments.

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Can Money help me pick a mutual fund? If you have an Internet connection and you click the Fund button in the Portfolio window, Money displays web pages that purport to help you pick an appropriate mutual fund. We know you didn’t buy this book to get investment advice. Nevertheless, we want to caution you against using information from the Money program and the MoneyCentral web site (which is published by Microsoft Corporation) for choosing a mutual fund. Choosing a mutual fund, all the research data show, is actually very straightforward and simple. Most of your performance depends on the asset class you select. In other words, the biggest, most important, and most significant decision you make is whether you want to put money into stocks, bonds, money market accounts, real estate, or some other class, such as international stocks. Within a given class of investments, such as stocks, the research shows that the most significant characteristic that determines the goodness of the investment is the expense ratio charged by the mutual fund management company. For example, if one mutual fund company charges you 2 percent of your fund balance to manage your investments and another company charges you .2 of a percent, almost invariably, the mutual fund charging the lower expense ratio will do better over long periods of time. For these reasons, picking a mutual fund should really revolve around two issues. The first issue is how you want to apportion your money between stocks, bonds, and other investments. Typically, you want to have the majority of your long-term investment money in stocks, some portion in bonds to reduce the volatility of your investment portfolio, and some portion of your money—perhaps your rainy day fund—in something like a money market account. The second issue you need to focus on in selecting a mutual fund is the expense ratio. Fortunately, the Internet and Money’s hyperlinks let you rather easily get to mutual fund prospectuses, and these materials provide expense ratio information. This is where you want to start—and probably finish—your mutual fund investing. You almost can’t win if you choose a mutual fund with a very high expense ratio. You almost can’t lose if you choose a mutual fund with a very low expense ratio.

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Let’s also briefly address the issue of finding a mutual fund manager who generates above-average returns. Clearly, some mutual fund managers, over time, have produced extraordinary returns—returns so high that they more than offset even large expense ratios. The point you need to realize, however, is that if you do choose to look for a star mutual fund performer, what you need to do right now is identify somebody who is going to be a star over the next two or three decades, not someone who has been a star over the past two or three decades. Long-term investing means you are looking out several decades into the future—even if you are retired. Note, too, that who performed well last year is no indication of who is going to perform this year. Repeatedly, studies have shown that last year’s or last quarter’s hot performer is not this year’s or this quarter’s hot performer. Here’s our investment strategy. We’re firm believers in stock index funds. For more than a decade now, we have invested our portfolios (perhaps 95 percent or more) in the widest-available stock index fund. When we started out using index funds, the only index that was available was a Standard and Poors 500 index fund. But when the total stock market index fund based on the Wilshire 5000 became available, we used that. Current (at least at the time of this writing) high stock market valuations, particularly for technology companies, make us think it’s wise for even young investors to have some portion of their portfolio in bonds. Including bonds in your portfolio will dampen the volatility of your investments and may make it easier for you not to worry about dayto-day or week-to-week fluctuations.

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Chapter 11

INVESTING IN STOCKS, BONDS, AND OTHER MARKET ABLE SECURITIES MARKETABLE

Questions Answered in This Chapter • How do I set up a brokerage account? • How do I record associated cash account transactions? • How do I record a stock purchase? • How do I record a bond purchase? • How do I record a certificate of deposit? • How do I record dividend income? • How do I record bond interest? • How do I deal with zero coupon bonds? • How do I record interest on a CD? • How do I record a stock sale? • How do I record a bond sale? • How do I record a stock split? • How do I record a stock dividend? • How do I record brokerage account fees? • How do I work with the associated cash account and investment account? • How do I handle a merger? • How do I record a liquidating dividend? 185

• How do I handle a short sale? • How do I record margin interest? • How do I handle derivatives using Money? • How do I handle precious metals and commodities? • How do I set up employee stock option investments? • How do I handle bond premiums? • How do I handle bond discounts? • Is there any way to make bond investment record keeping easier? • How do I view my stock and bond holdings? • How do I invest online with Money? The same convenient, powerful, and yet easy-to-use tools that Microsoft Money 2001 provides for keeping track of mutual fund investments also work for stocks, bonds, and other marketable securities. This chapter answers questions about how these tools can be used for these other more sophisticated and complex investment opportunities.

How do I set up a brokerage account? You set up a brokerage account in the same way that you set up a mutual fund account. Chapter 10 describes how to do this step by step, so refer to that chapter’s answer to the question, “How do I set up a mutual fund account?”

How do I record associated cash account transactions? When you set up an investment account, Money actually sets up two accounts—one for holding your investment transactions and one for holding your cash transactions. The account that holds your cash transactions is called the associated cash account. To display its register, first display the investment account’s register and then click the Cash Transactions link. The associated cash account works in the same way as a bank account register.

How do I record a stock purchase? You record stock purchases in the same way that you record mutual fund share purchases. For information on how to record mutual fund share purchases, refer to Chapter 10 for the answer to the question, “How do I record additional purchases?” 186

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How do I record a bond purchase? Bond purchases work just like stock purchases. You record them in the appropriate account register by writing the terms of the purchase, including the date, the price paid for the bond, the commission paid, and the source of the funds, if you didn’t use the associated cash account. The one somewhat tricky aspect of bonds is that bond prices are typically quoted as a percentage of the bond’s face value. For example, a bond price of 99.5 probably means the bond actually cost $995. The reason for this is that bonds typically have a face value of $1,000—this is not always the case, but is a good generalization—and the bond price is a percentage of the face value. Therefore, a bond price of 99.5 really says that the bond’s price is 99.5 percent of the bond’s face value. If the face value equals $1,000, then the bond’s price equals $995. Despite the confusing conventions used in describing bond prices, what you want to do is just keep everything simple. Use the actual dollar price—this is the amount you paid for the bond—as the bond price. Don’t enter the quoted price supplied by your broker. This isn’t the value that goes in the Price box.

How do I record a certificate of deposit? If you purchase a certificate of deposit, you can treat it in the same way that you treat a bond purchase. Basically, certificates of deposits, or CDs, are just bonds issued by banks or financial institutions often for a shorter period of time. For example, you can think of a two-year CD as equivalent to a two-year bond.

How do I record dividend income? You record a stock dividend the same way that you record a mutual fund dividend. For more information about how this works, refer to Chapter 10 for the answer to the question, “How do I record income or capital gains?”

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How do I record bond interest? In general, you record bond interest using a sequence of steps that closely resemble those for recording the dividend that a stock or mutual fund pays. Display the appropriate investment account register, and then indicate that you need to record a new investment transaction in the register. Describe the transaction by providing information such as the bond interest payment date, the amount, the account into which the money is deposited, and so forth. The one difference with a bond interest transaction is that the investment activity is listed as Interest rather than Dividend. Everything else works in the same way as for a stock or mutual fund that pays a dividend.

How do I deal with zero coupon bonds? If you invest in bonds, you may know that some bonds don’t actually pay periodic interest. Instead, these bonds, called zero coupon bonds, pay their interest when the bond matures. For zero coupon bonds, you need to annually accrue the interest on the bonds. The annual interest needs to be accrued because, by convention, you report the annual increase in the zero coupon bond’s value as interest earned. To record accrued interest on a zero coupon bond, take the following steps: 1. Record the interest income that accrues. Record bond interest that accrues in the normal way. In other words, whatever amount shows as being accrued—this should appear on the statement from your broker—record it as bond interest income. 2. Record a negative return of capital transaction equal to the accrued amount. After you record the bond interest that’s accrued, you need to record a return of capital transaction that adds this accrued interest back to the value of the bond. The amount of this capital transaction, obviously, needs to equal the accrued interest amount. But there is a twist here: You need to specify the return of capital amount as a negative value. For example, if you accrue $100 of interest on a zero coupon bond, you also need to record a return of capital transaction for the bond equal to –$100. Figure 11-1 shows an example of this transaction.

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Figure 11-1 An investment register with an interest accrual transaction recorded.

By recording the return of capital transaction, you in effect transfer the bond interest money from the associated cash account and add it back to the zero coupon bond’s value. In this way the associated cash account shows the correct cash balance and the zero-coupon bond shows the correct cost basis. The zero coupon bond’s cash basis equals the original purchase price plus all the accrued interest that’s been recorded to date.

How do I record interest on a CD? How you record interest on a CD depends on how the CD pays its interest. If the CD periodically pays its interest, say at the end of the month or end of the year, you can record the interest in the same way that you record the interest on a bond. To do this, simply record an interest transaction in the appropriate investment account register. If a CD doesn’t pay interest except at maturity, the CD is equivalent to a zero coupon bond. In this more typical case, you record the accrued interest in the same manner as that described in the preceding paragraphs for a zero coupon bond. NOTE If you are buying significant amounts of certificates of deposits, and these instruments are essentially zero coupon bonds, you will want to confer with your tax advisor concerning the treatment of the CD interest. It may be that you don’t need to accrue CD interest that is not paid until maturity. You may be able to wait until the CD matures.

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How do I record a stock sale? You record stock sales in the same way that you record mutual fund share sales. For more information about how to do this, refer to Chapter 10 for the answer to the question, “How do I record the sale of mutual fund shares?”

How do I record a bond sale? You record the sale of a bond in almost the same way that you record the sale of a stock. One tricky feature of a bond sale, however, concerns accrued interest. Even in the case of a bond that periodically pays interest, you need to accrue any interest earned since the last interest payment date. (Although in the case of a zero coupon bond, you have to accrue interest earned only since the last interest accrual transaction.) You need to record accrued interest on bonds because, if you sell a bond, some of what you are receiving represents accrued interest. To record accrued interest on a bond, follow the same steps as previously described in the answer to the question, “How do I deal with zero coupon bonds?” In a nutshell, you accrue interest by entering two transactions in the appropriate investment account register. First, you record the accrued interest by recording what appears to be a regular interest transaction. The interest amount gets transferred into the associated cash account, which is wrong, but you fix that by recording the second transaction. The second transaction records a return of capital amount equal to the amount of accrued interest. The tricky part with the return of capital transaction, however, is that the transaction amount needs to be set to a negative value. For example, if you are recording $100 of accrued interest, you need to set the return of capital transaction to –$100. The combination of these two transactions—a regular bond interest transaction and a negative return of capital transaction—results in the correct recording of accrued interest for the bond.

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NOTE If you pay accrued interest when you purchase a bond, you also need to record that as part of the initial bond purchase transaction. To record the accrued interest on a bond you purchased, you need to record two separate transactions. First, record the bond purchase in the way described earlier. Second, record a return of capital transaction with a negative return of capital amount. This negative amount equals the accrued interest. Then when you get your first interest payment on the bond, you record as interest income only the amount that you didn’t previously accrue. For example, if you received a $50 interest payment, but $20 of it had already been accrued as part of recording the purchase, you would record only $30 of interest income. You would, however, handle the remaining $20 as a return of capital transaction.

How do I record a stock split? A stock split typically occurs when a company adjusts the number of shares to reduce their price. For example, a company might say that for each share now owned, on some specified future date shareholders would receive two new shares. A two-for-one split (or any other sort of split) doesn’t affect the value of your investment. It only affects the number of shares you own. To record a stock split, take the following steps: 1. Display the investment account with the stock you want to split. Click the Accounts & Bills link, and then select Account List so that Money displays the Pick An Account To Use window. Then click the investment account. Money displays the investment account register. 2. Indicate that you want to record a stock split. Click More Investing in the list of common tasks, and then choose Record A Special Activity from the submenu. Choose Record A Split from the next submenu, and Money displays the Split Shares dialog box, as shown in Figure 11-2.

Figure 11-2 The Split Shares dialog box.

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3. Describe the split. To describe the split, select the investment from the Investment list box. Then enter the split date in the Date box. Finally, describe the ratio of new shares for old shares using the Split The Shares boxes. NOTE The number of new shares goes in the box on the left. The number of old shares goes in the box on the right.

How do I record a dividend paid in stock? When a company pays in stock rather than cash you receive what’s known as a stock dividend. In effect, a stock dividend is an accounting gimmick. Companies, so the cynics say, use stock dividends when they don’t have the money to pay a cash dividend. Stock dividends don’t require difficult record keeping. To record a stock dividend, simply record a stock split. For example, if a company issues a 10 percent stock dividend in which they are giving you 1/10th of a share for each share you already own, then enter the ratio as 1.1 new shares for each one old share.

How do I record brokerage account fees? As noted in Chapter 10, Money includes an Other Expense investment activity. You use the Other Expense investment activity to record a monthly account maintenance fee or an annual maintenance fee for your brokerage account. To record this type of account fee, take the following steps: 1. Display the investment account register. Click the Accounts & Bills link, and then select Account List so that Money displays the Pick An Account To Use window. Then click the investment account. Money displays the investment account register. 2. Enter the fee transaction date. Enter the fee transaction date in the Date box by clicking the box’s button to display a pop-up calendar that you can use to select the date.

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3. Leave the Investment box blank. To indicate that this fee is not associated with a specific investment, but with the account in general, leave the Investment box blank. 4. Identify the transaction as an Other Expense transaction. Click the Activity box’s button, and then select Other Expense from the list of investment transactions. 5. Identify the account from which you will pay the fee. Use the Transfer From box to select the account from which you will pay the account maintenance or brokerage fee. Clicking the box’s button displays a list of accounts you have already set up. To select one, simply click it. 6. (Optional) Provide a memo description. Enter additional information about the fee in the Memo box. For example, you might want to explain how the fee is calculated or note that it’s an annually recurring amount. 7. Categorize the expense or fee. Categorize the fee using the Category and Subcategory boxes that appear after you have identified the transaction as an Other Expense transaction. Note that investment expenses may be an itemized deduction, so you want to make sure you use a category that maps to your Schedule A tax form. This Schedule A tax form is the one on which miscellaneous deductions such as deduction expenses get reported. 8. Provide the total for the fee amount. Enter the amount of the account or brokerage fee in the Total box by entering the value directly into the box or clicking the box’s button and using the pop-up calculator to calculate or enter the amount. 9. Record the transaction. After you describe the transaction for the account fee, click the Enter button. Money records the transaction in the account register (see Figure 11-3).

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Figure 11-3 The investment account register with an account fee transaction.

How do I work with the associated cash account and investment account? If you click the Cash Transactions task link in the Money investment account window, Money displays the account register for the associated cash account. The account register works in the same way that any bank account register would work. You enter withdrawals, transfer deposits, and transfer transactions in the same way as for a regular checking account. You also reconcile this account in the same way. NOTE For more information about how to keep a checkbook account using the account register window, refer to Chapter 2. For more information about how to balance or reconcile a checking account, refer to Chapter 3.

How do I handle a merger? If a company in which you own stock merges with another company, you need to reflect this change of corporate structure in your investment records. To do this, Money provides a wizard that steps you through the process of recording the merger in your financial records.

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First, display the investment account register with the stock that has been involved in a merger. Then click the More Investing Tasks link, choose Record A Special Activity from the submenu, and then choose Record A Merger from the next submenu. When you do this, Money starts the Record A Merger Wizard. To use it, simply follow the on-screen instructions.

How do I record a liquidating dividend? We’ve previously described how to handle a regular cash dividend paid by a company in which you own stock. We’ve also described how to deal with a stock dividend, which isn’t really a dividend at all but a kind of stock split. There is one other type of dividend that you sometimes encounter. A liquidating dividend occurs when a corporation in which you own stock returns money to you, as a shareholder, that isn’t part of the corporation’s profits. These liquidating dividends occur infrequently, but you sometimes see them, as in the case when a company is essentially liquidating itself. To record a liquidating dividend, simply record a return of capital transaction. The return of capital amount is equal to the amount of the liquidating dividend.

How do I handle a short sale? Money includes an investment activity, or investment transaction type, for short sales. You record a short sale transaction in the regular way—except you specify the activity as a short sale. Everything else works the same way as a regular sale.

How do I record margin interest? To record the interest you pay on your margin loan, simply record an Other Expense transaction. Use the appropriate interest expense category and, optionally, subcategory for the margin loan interest. How you record an Other Expense transaction is described in the answer to the question, “How do I record brokerage account fees?”

How do I handle derivatives using Money? Derivatives are securities that derive their value from some underlying security. For example, an option to sell a stock, called a put, is a derivative. It derives its value from the underlying security. Another derivative is an option to buy a stock, called a call.

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You can use Money to keep records of derivatives, such as puts and calls, that you buy. In general, derivative record keeping is quite straightforward. If you buy a derivative, say a put or a call, and later sell the derivative, you simply have a normal investment transaction. You treat the purchase and later the sale in the same way that you treat the purchase and sale of any stock. If you make money, you realize a gain. If you lose money, you realize a loss. If you buy or sell a put or call and hold the option until it expires, things work almost the same way. However, in this special case, you do need to record a Final Sale transaction, and the sales price is zero. Obviously, if you hold a put or call until it expires, you don’t actually sell the derivative. But you need to record a sale transaction to reflect the fact that the option is no longer worth anything. These are the basic techniques you need to know for put and call record keeping— and record keeping for similar derivatives—but there are two special circumstances in which more complicated record keeping is required.

Selling Puts and Calls If you sell puts and calls—note that the earlier discussion involves investing in puts and calls—you need to record the option as a regular buy or sell transaction. In other words, if you sell a put and the person to whom you sell it exercises the put, you record this transaction as a regular sales transaction. Similarly, if you sell a call, you record the transaction as a regular buy transaction. NOTE If you sell a put or call option and the option never gets exercised, you record the amount of money the buyer pays you as Other Income.

Exercising Puts and Calls Typically, individual investors don’t actually exercise puts and calls that they buy. Instead, they simply sell the option back to the broker. However, you might end up exercising a put or call, and in this case, you need to perform special record keeping. To record the exercise of a put option, record the sale of the put option at a price equal to zero. This zero-value sale is how you record the expiration of the option. After you have recorded the expiration of the option, you record the sale of the stock in the same way that you record the sale of any stock. (Remember that a put is an option to sell stock.)

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To record the exercise of a call option, record the sale of the call option at a price equal to zero. This zero-value price lets you record the expiration of the option. After you have recorded the expiration, you record a regular buy transaction. (Remember that a call option is an option to buy a security.)

How do I handle precious metals and commodities? You can treat investments in gold and other precious metals, gold coins, agricultural items, and other commodities in the same way that you treat shares of stock. Rather than entering a share price, you enter a price per ounce or a price per bushel. And rather than recording a specific number of shares, you enter a specific number of whatever unit of measure is used to describe the commodity. In the case of gold, for example, you might enter the number of ounces. In the case of an agricultural item, you might enter the number of bushels. You can treat options to buy or sell commodities in the same way that you treat options to buy or sell securities. The earlier discussion on handling call and put options discusses the techniques you use for this record keeping.

How do I set up employee stock option investments? Money lets you set up employee stock option plan grants as investments. In order to do this, you simply set up an account to track the value of the employee stock option plan. However, when Money displays the New Account dialog box asking what account you want to set up, indicate that you are setting up an account to track employee stock options rather than general investments. The instructions are selfexplanatory from this point on.

How do I handle bond premiums? If you buy a bond that pays an interest rate over and above the market interest rate, implicit in your purchase price is something called the bond premium. The bond premium is just the market’s way of adjusting the price of a bond that pays too high of an interest rate.

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Bond premiums, unfortunately, present nightmarish difficulties for your record keeping. Theoretically, what you should do is amortize the amount of the bond premium over the life of the bond. In effect, this premium allocation lets you chop up the amount of the premium and allocate it over the period that the bond pays its interest, thereby reducing the bond interest. For example, if you implicitly pay $100 of bond premium for a bond that will pay interest over ten years, it would make sense, roughly speaking, to reduce the amount of bond interest you actually record by $10 a year. The $10 amount equals 1/10th of the $100 bond premium. We say “roughly speaking” here because actually the calculations are more complicated than a simple straight line allocation. You should use an effective interest rate to adjust the annual bond interest to an amount so that the interest rate stays equal to the bond’s yield to maturity. But that discussion is really beyond the scope of this book. Because of this complexity, we recommend that you simply ignore the bond premium. By ignoring the premium, you will overstate the interest you will earn over the years that you hold the bond, meaning that you will pay more in income taxes on the bond interest over those years. (At the end of the bond life, you will show a capital loss on the bond equal to the bond premium that you didn’t record, but should have.) This strategy of ignoring the premium until the very end and then counting the bond premium as a loss, or better yet, as an adjustment to the bond interest paid in the final year, makes your record keeping much, much simpler. NOTE The IRS allows U.S. taxpayers to ignore the bond premium in annual bond interest calculations. This makes sense because by ignoring, or postponing, the bond premium, you overstate the interest you earn on the bond investment.

How do I handle bond discounts? Bond discounts work in a fashion similar to bond premiums—except bond discounts occur when a bond pays an interest rate that is lower than the interest rate the market requires. Theoretically, if you buy a bond at a discount, you are supposed to allocate the bond discount over the years that you hold the bond as additional bond interest income. For example, if you buy a bond for $900 but will receive $1,000 upon redemption, the $100 profit you make amounts to interest. This interest is essentially like that paid by a zero coupon bond.

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When dealing with a bond discount, you do need to record accrued interest. The amount of the accrued interest equals the amount of the bond discount that is allocated to the year. Earlier in the chapter, we described how to record accrued interest on a zero coupon bond. The recording of accrued interest for a bond discount works in the same way. (The accrued interest for a bond discount is actually called amortization.) Although the IRS requires U.S. taxpayers to amortize bond discounts, there is a loophole that might save you from the necessity of doing so. When a bond discount results in a very small change in the effective interest rate paid by a bond, you might be able to skip recording the amortization of the bond discount. If you have more questions about this, consult your tax advisor.

Is there any way to make bond investment record keeping easier? Bonds probably deserve a place in almost every investor’s portfolio, despite the recent criticisms of people who misunderstand the risks of stock market investing. Unfortunately, however, bond investing greatly complicates your investment record keeping. The problem of accrued interest, and the twin and related complexities of bond discount and bond premium amortization, can make the process very confusing. Fortunately, you have several alternatives. For example, one of the best alternatives you have is simply to use a bond mutual fund. By using a bond mutual fund, you offload all the complicated bond investment recordkeeping onto the shoulders of the mutual fund company’s accounting department. As long as you don’t pay too great a price for this accounting service, it is well worth it. Another alternative you have to help minimize the work of recording bond investment transactions is simply to make sure that you are not trading in bonds. In other words, if you minimize the number of purchase and sales transactions you make, you do minimize the number of times that you need to work through the complexities of bond interest accrual calculations and amortizations of bond discounts and premiums.

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A third alternative you have for simplifying your bond investment record keeping is this: You can use tax-deferred investment accounts, such as an individual retirement account (IRA), to invest in bonds. IRAs don’t affect your tax return. The bond interest income that you earn in an IRA, for example, doesn’t get reported on your tax return. Neither do the capital gains or losses you realized because you bought or sold a bond investment. By avoiding the need for precise bond interest and capital gain and loss calculations required for tax reporting, you can skip a lot of the complicated recordkeeping work.

How do I view my stock and bond holdings? All of the same tools that Money provides so that you can more easily view, monitor, and manage your mutual fund investments are also available for your stocks, bonds, and other marketable securities. These tools, and examples of when you might use them, are briefly described in Chapter 10. Refer to that chapter if you have questions about how to use these tools for stock and bond investment management.

How do I invest online with Money? You can’t actually buy or sell securities from within the Money program. Money does provide a very interesting tool for online investing, however. If you invest online and you are using the Money program, you may be able to have your online broker provide an electronic version of your monthly statement that you can then download directly into the Money investment account registers. This service greatly simplifies your monthly record-keeping duties. It saves you from having to record all the transaction details every time a stock pays a dividend, or every time some bond pays an interest amount. If you are interested in this feature, contact your online broker and ask whether they provide this service. If they do, ask for their instructions about how to set up the service. You will probably need to go through an application process. You might also have to pay for this service.

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Chapter 12

INVESTING IN REAL EST ATE ESTA

Questions Answered in This Chapter • How do I keep records for REIT investments? • How do I keep records for direct property investments? • How do I set up real estate categories? • How do I set up real estate classifications? • How do I set up an asset account for a property I own? • How do I perform record keeping for rental income and expense amounts? • How do I prepare income or cash flow statements for real estate investments? • How do I keep track of outstanding rent payments? • How do I track property improvements and repairs? • How do I track depreciation on a real estate investment? Microsoft Money 2001’s record-keeping tools work well for real estate investors. Money lets you easily track investments in real estate investment trusts, or REITs, as well as any direct investments, such as rental property, that you may have. This chapter describes how to do both types of record keeping.

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How do I keep records for REIT investments? In essence, a REIT is a company that owns apartment houses, office buildings, shopping centers, or sometimes real estate mortgages. A REIT investment works in the same way that a stock investment works. You buy and sell REIT shares in the same way that you buy and sell shares of a stock. From the perspective of the investor, REIT record keeping works in the same way as stock record keeping.

How do I keep records for direct property investments? You can use Money to keep the financial records for property you own and actively manage, such as rental properties, office buildings, and so on. To track direct real estate investments using Money, you need to complete two tasks. First, you need to set up categories that match the income and expense amounts reported on the tax form you use to describe your real estate investing, income, and deduction data. This is the Schedule E tax form at the federal level for U.S. taxpayers; your state taxing agencies may use a similar form (see Figure 12-1).

Figure 12-1 The Schedule E tax form.

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The Schedule E form requires you to report your rental income and the individual types of expenses that you incur, such as advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and other professional fees, management fees, mortgage interest, other interest, repairs, supplies, taxes, and utilities. The rent income item and each of these expense items needs to also have its own category. Tax forms do change from year to year. This presents a problem in that you only know for sure which income and expense categories you report at the end of the year. Nevertheless, if you start with a good set of income and expense categories, real estate investment record keeping is much easier. If you look closely at the Schedule E tax form shown in Figure 12-1, you will also note that you need to report income and expense amounts individually for each property you own. For example, if you own three small rental properties, the Schedule E form requires that each property’s income and expense be reported individually. The first property, for example, would be reported in the Property A column. The second would be listed in the Property B column, and the third in the Property C column. You would also total columns A, B, and C and report using the Totals column. The second task you need to complete is to set up what Money calls a “classification” to report income and expense information by property By using a classification for each separate property, you can easily collect income and expense data by property. NOTE How you set up income and expense categories and how you set up classifications are described in the answers to the next two questions.

How do I set up real estate categories? You set up income expense categories for use for real estate investment record keeping in the same way that you set up any other income or expense category. Specifically, take the following steps: 1. Display the Set Up Your Categories window. To display the Set Up Your Categories window, click the Accounts & Bills link, and then select Categories & Payee. Money displays the Set Up Your Categories window, as shown in Figure 12-2.

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Figure 12-2 The Set Up Your Categories window.

2. Indicate that you want to set up a new income or expense category. Click the New button, and Money then displays the first dialog box of the New Category Wizard. It asks whether you want to create a new income or expense category. Answer this question by clicking the appropriate button (see Figure 12-3).

Figure 12-3 The New Category dialog box that asks for the category type.

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3. Give the category a name. Enter a name in the Name box for income or expense categories. For example, a category to track rents received might be rent or rent income. The category to track advertising might be advertising. 4. Identify the category type and group. Click the Income or Expense option button to identify the type of category, and then click the Next button. Money displays the last New Category Wizard dialog box. It asks in which predefined group of categories Money should report the new category. Pick the predefined group that is closest, and then click the Finish button. 5. Add any other categories required. Repeat steps 2 through 4 for each category you want to add to the list that Money maintains. As mentioned earlier, you need an income category to record rent received, and you need to have expense categories for each of the expense amounts you’ll report on the Schedule E form. It’s not a bad idea to precede each of the real estate categories you set up with a short abbreviation or word that clearly identifies the category as one you will use for real estate record keeping. For example, you might want to precede or start each category name with the two-letter abbreviation re to identify the category as one related to real estate. Or you might want to start each income and expense category name with the word rental. For example, the income category might be rental income. The advertising category might be rental advertising, and so on. By having each rental and expense category start the same way, you will find it much easier to produce reports that include only rental income and expense categories. Later in the chapter, we explain how to use Money’s reporting features to look at just a selection of categories—such as those categories you use for real estate investment record keeping.

How do I set up real estate classifications? As mentioned earlier, you need to not only track real estate income and expense amounts using categories but you also need to be able to segregate this income and expense data by property. For example, if you own two or three properties, you need to create an income statement for each of these properties.

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Money lets you perform this type of investment record keeping through its classification feature. To set up a separate classification for each property you own, take the following steps: 1. Display the Set Up Your Categories window. Click the Accounts & Bills link, and then select Categories & Payee. 2. Create a classification for properties. Click the Classification 1 link in the Set Up Your Categories window. When you do, Money displays the Add Classification dialog box (see Figure 12-4). Use this dialog box to indicate you need a classification system to track individual property.

Figure 12-4 The Add Classification dialog box.

3. Select Properties as your classification system. Click the Properties option button to use Properties as a classification method. Click the OK button. 4. Create a classification for each property you need to track. Money displays the Set Up Your Properties window (see Figure 12-5). This window lists the Properties classification you set up. Initially, of course, it won’t show any properties, but as you add properties to your list, Money adds them to the list shown in this window.

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Figure 12-5 The Set Up Your Properties window.

5. Describe a property using a classification. Click the New button, and Money displays the New Class Or Subclass dialog box (see Figure 12-6). Use the Name box to uniquely identify the property. For example, you might enter the name of the property, if it has a name, such as Rose Hill Manor or Kirkland Square. Click the OK button.

Figure 12-6 The New Class Or Subclass dialog box.

6. (Optional) Add descriptive information about the classification. After you define the classification, Money adds it to the list shown in the Set Up Your Properties window. If you double-click the classification, or click the classification to select it and then click the Go To Details button, Money displays a window much like the one shown in Figure 12-7. You can use this window to look at classification-level data. You can also use this window to collect freeform information about the classification, such as the property tax account, perhaps information about the property’s history of rent increases, or its history of scheduled maintenance tasks. Enter this type of information in the large text box. Investing in Real Estate

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Figure 12-7 The classification details window.

How do I set up an asset account for a property I own? You need to set up an asset account for a property that you own in order to track the cost basis of the property. As you probably know, if you sell the property, the capital gain or loss on that sale is calculated by comparing your sales proceeds with the original cost of the property. However, in the case of many real estate investments, the cost is not just the original price you paid. The cost is adjusted over time for factors such as depreciation or major common capital improvements. To set up an account for a property you have just purchased, take the following steps: 1. Display the Pick An Account To Use window. Click the Accounts & Bills link, and then select Accounts List. 2. Start the New Account Wizard. Click the Set Up Accounts task link in the list of common tasks. When you do this, Money displays a list of other tasks and hyperlinks in the Set Up Your Accounts window. Click the Add New Accounts link, and Money starts the New Account Wizard.

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3. Indicate that this is not an account held at a financial institution. The first New Account dialog box asks for the name of the financial institution that holds your account. In the case of a bank account, your checking account is actually held by a bank. However, a property you own or manage is “held” by some other financial institution. So when Money asks for the name of the financial institution, click the Not Held At A Bank Or Other Financial Institution option button and then click the Next button. 4. Identify the account as an asset account. Money displays the second New Account dialog box, as shown in Figure 12-8. Select Asset from the list of account types, and then click the Next button.

Figure 12-8 The second New Account dialog box.

5. Identify the acquisition date. In the third New Account dialog box, enter a name in the Name box and then enter the acquisition date in the Date You Acquired This Asset box. Click the Next button. 6. Provide the original purchase or acquisition price of the property. In the fourth New Account dialog box, use the What Is The Asset’s Current Value box to record the purchase or acquisition price (see Figure 12-9). Confirm that the currency description shown in the What Is The Currency For This Account box is correct.

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Figure 12-9 The fourth New Account dialog box.

NOTE You should be able to get the asset purchase price information from the closing documents. The purchase price, in general, is the total price you paid for the property. If you have questions about whether some element of the cost or fee associated with the purchase is included in this price amount, consult your tax advisor.

7. Describe the mortgage. When Money asks whether it should set up a loan for the asset, answer this question by clicking the appropriate option button. Then follow the wizard’s instructions for setting up the loan account. If you have questions about how to set up a mortgage, refer to Chapter 9 for the answer to the question, “How do I set up an account for tracking a debt?”

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How do I perform record keeping for rental income and expense amounts? After you have set up real estate income and expense categories and also created classifications for tracking the properties you own, you will find it very easy to do your bookkeeping with Money. You just need to make sure that you use the appropriate real estate income category to categorize any rent checks you receive as deposits. And, similarly, you need to use the appropriate real estate expense category to record any checks you write or other account withdrawals that are made because of expenses associated with owning, operating, or maintaining the property. The other point you need to remember is that you also need to classify income and expense transactions associated with a real estate property by providing the property classification when you record the transaction. Figure 12-10 shows an example deposit transaction. This deposit transaction looks the same as any other deposit transaction. You enter the number, if needed, the date, the “from” information, the amount, the category (which is a real estate income category), and a memo description if needed. Note, however, that Money also provides a Properties list box in the transaction entry area. After you have added a Properties classification, Money adds these boxes. To use them, simply click the box’s button and select the property. For example, if you are recording a rent check from a tenant at a property for which you set up the classification “Rose Hill Manor,” select the Rose Hill Manor property from the Properties list box.

Figure 12-10 An example deposit transaction. Investing in Real Estate

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Recording a rental expense works in the same way. Figure 12-11 shows a withdrawal transaction. This withdrawal transaction is an example real estate expense. The transaction entry form area includes a check number, the check date, the name of the individual or business you are paying, the category information (using real estate expense categories, of course), and a memo description. However, the transaction entry form area also provides Properties boxes that you use to identify the property for which the expense was incurred. If a check is written to pay some expense for the property “Kirkland Square,” for example, this information is recorded by selecting the Kirkland Square entry from the Properties list box.

Figure 12-11

An example expense transaction.

By using the appropriate real estate income and expense categories as well as classifications for each of the properties you own and manage, Money collects the data needed for producing reports that summarize the income, deductions, and cash flow by property. This information also lets you easily prepare any year-end income tax forms required of a real estate investor.

How do I prepare income or cash flow statements for real estate investments? After you collect transaction data for your real estate investments, you can prepare a report that includes only your real estate income and expense categories and that organizes your information using your Properties classifications.

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To prepare such a report, take the following steps: 1. Indicate you want to prepare an Income vs. Spending report. To indicate you want to prepare a report on income versus spending, click the Reports link, and then select Reports Gallery. When Money displays the Pick A Report window, double-click Income vs. Spending so that Money displays the Income vs. Spending report in a window. However, the report will include all of your income and expense transactions for the last month. You will need to customize this report so that it shows only the data you want. 2. Pick the appropriate accounting period. Click the Customize link to display the Customize Report dialog box. You use this dialog box to control which information appears on the Income vs. Spending report. First, specify the accounting period or reporting period that Money uses for the report. To do this, click the Date tab and then enter dates directly into the From and To boxes, or click the box’s button to display a pop-up calendar (see Figure 12-12).

Figure 12-12

The Date tab of the Customize Report dialog box.

3. Select the real estate income and expense categories. Then you select the categories you want to appear on the report. Select only those categories you use for keeping records of your real estate income and expenses. To do this, click the Category tab (see Figure 12-13). To clear all the categories—you do this because Money by default selects every category—click the Clear All button. Then scroll through the list of categories and click the real estate income and expense categories that you want to appear on your Income vs. Spending Report.

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Figure 12-13 The Category tab of the Customize Report dialog box.

4. Tell Money to organize income and expense category information using the Properties classification. To tell Money to use your Properties classifications for organizing information shown on your Income vs. Spending report, click the Rows & Columns tab (see Figure 12-14). Then select Properties from the Columns list box. This tells Money to display each property’s income and expense data in its own column. Click the Apply button or click the OK button to have Money regenerate the report using your new specifications.

Figure 12-14 The Rows & Columns tab of the Customize Report dialog box.

Figure 12-15 shows the simple Income vs. Spending report that uses only the real estate income and expense categories. The report also uses separate columns to provide the income and expense information by property.

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Figure 12-15 A simple Income vs. Spending report.

How do I keep track of outstanding rent payments? Money doesn’t provide the sophisticated accounts receivables features that are available in full-blown business accounting programs. As a result, Money doesn’t provide any formal tools for you to use for tracking the amounts that tenants owe you. You can, however, create a recurring deposits transaction. If you create a recurring deposits transaction for each tenant payment you are owed, Money will remind you to record this deposit—say, at the rent due date. This reminder, in effect, will work as an accounts payable aging. In other words, if you are notified on the 10th of every month that you should record a check from one of the tenants in your Rose Hill Manor building, this reminder will alert you when you haven’t been paid. To set up a recurring deposits transaction, take the following steps: 1. Display the checking account register you usually use for recording real estate income and expense information. Click the Accounts & Bills link, and then select Account List. When Money displays the Pick An Account To Use window, double-click the name of the bank account you use for this record keeping and checking activity.

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2. Indicate that you want to set up a recurring deposit. To tell Money that you want to set up a recurring deposit for some tenant rent payment you expect to record every month, click the Deposit tab. Then click the Common Deposits button, choose Recurring Deposits, and then choose Create A New Recurring Deposit from the submenu. Money then displays the Create New Scheduled Deposit dialog box, as shown in Figure 12-16.

Figure 12-16 The Create New Scheduled Deposit dialog box.

3. Describe the tenant rent payment. Describe the tenant rent check that you are owed. For example, when the dialog box asks “Who is this deposit from?”, you answer by providing the tenant name. When the dialog box asks “How often does the deposit occur?”, indicate that the deposit frequency is monthly because the tenant pays his rent monthly. When the dialog box asks for the total amount of the deposit, obviously, you enter the rent amount. After you have provided this information, Money will prompt you to record the rent check each month, if you haven’t already recorded it. This means that if Money prompts you to record a rent check, it is probably past due or at least due.

How do I track property improvements and repairs? You can and should track any improvements and repairs you make to a property by using your Money account and category information. However, the steps you take to record improvements to a property and the steps you take to record repairs to a property actually differ. 216

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Recording Capital Improvements In the case of a capital improvement, you can’t legally charge off the cost of making the improvement as a deduction. In other words, you can’t include the cost of improving your property on your Schedule E as an expense. Rather, you need to add the cost of the improvement to the cost basis of the property. To do this, you record the check in the usual way but with one significant difference. Rather than categorize the check as falling into some expense category, you record a transfer transaction. The transfer transaction moves money from your checking account to the property’s asset account. By recording a transfer transaction, you reduce the balance of your checking account for the effect of the check. And you bump up the value or cost of the asset for the improvement. Figure 12-17 shows the transaction that records the cost of an improvement—a new roof—in just this way. Note that the Category box actually shows an account transfer to the Rose Hill Manor asset account. The Rose Hill Manor asset account is the account used to track the cost and cost adjustment data for the Rose Hill Manor apartment property.

Figure 12-17 How a check that pays for a capital improvement should be recorded.

Figure 12-18 shows the account register for the Rose Hill Manor’s asset account. The first line of the register shows the opening balance, which is actually the original purchase price of the property. The second line shows the cost of the new roof improvement. This improvement adjusts the cost basis of the property.

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Figure 12-18

How the capital improvement transaction looks in the asset account register.

Recording Capital Repairs Repairs, in contrast, work just like any other expense. If a repair doesn’t significantly extend the life of a property, you simply use an appropriate real estate expense category for categorizing the check. The Schedule E shown earlier in this chapter includes a maintenance expense category. You probably use this to record any repairs you make as long as the repairs are not considered improvements.

How do I track depreciation on a real estate investment? You can use Money to record the depreciation expense you have charged for a real estate investment. To do this, display the real estate asset’s account register. Then record expense transactions in the register equal to the amount of depreciation calculated for a year. The expense category you use to categorize such transactions is a real estate depreciation expense category. Figure 12-19 shows the same real estate asset account register from Figure 12-18, only this time with the single depreciation expense transaction shown. The depreciation expense transaction reduces the account balance of the asset account for the depreciation expense reported for the year.

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Figure 12-19 An asset account register with a depreciation transaction.

You typically would not calculate the depreciation expense yourself. This value is calculated by looking up a depreciation factor in a table that is available in federal and state revenue agency publications. The rules for looking up the appropriate depreciation factor involve looking at the type of property you are depreciating, the date you originally put the property into service, the month of the year you put the property into service, and the number of years you have already depreciated the property. Because the rules are complicated, most real estate investors get this information from their tax advisors. You will probably want to do so, too. NOTE If you do want to make depreciation calculations yourself, you can obtain publications from the IRS that explain how to do this. You can also obtain any tax form or publication from the IRS web site at http://www.irs.ustreas.gov/.

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Chapter 13

BUDGETING AND FINANCIAL PLANNING

Questions Answered in This Chapter • How do I create a budget? • How do I create a personal financial plan? • How do I plan for retirement? • How do I plan for a child’s college expenses? Microsoft Money 2001 provides numerous tools for budgeting and financial planning. These tools let you map out a plan for day-to-day spending and for achieving your longterm financial objectives, such as a comfortable retirement. In addition to the Money program and the related MoneyCentral web site, many other sources are available for sound financial planning information. We’ll call your attention to some of them in this chapter.

How do I create a budget? You can use the Money program to create a budget. By using Money for budgeting purposes, you can compare your actual spending to your budgeted spending. You use Money’s Budget Planner tool to set up a budget. To use the Budget Planner tool, follow the steps on the next page.

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1. Display the Budget Planner window. Click the Planner link, and choose Budget Planner. Money then displays the Budget Planner window (see Figure 13-1).

Figure 13-1 The Budget Planner window.

2. Use the Budget Planner Wizard. The Budget Planner Wizard steps you through a very thorough process for creating a budget based on your exact income, your long-term savings plans and goals, the possibility of occasional extraordinary expenses, your contractual debt payments for car loans and mortgages, and your anticipated expenses. To step through this planning process, click hyperlinks in the Budget Planner window. Read the instructions inside the windows and, when prompted, provide data by filling in fields. After you finish with the Budget Planner Wizard, you have a complete and very detailed budget. Figure 13-2 shows yearly summary information in the Budget Planner window.

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Figure 13-2 The Budget Planner’s summary information.

How do I create a personal financial plan? Money supplies a Lifetime Planner tool that in effect creates a personal financial plan for you. The Lifetime Planner is a wizard that collects and then analyzes a large volume of personal financial data concerning you and your family, your current financial situation, and your future financial aspirations. The Lifetime Planner starts with a video. Just as with the Budget Planner, read the instructions inside the windows and, when prompted, provide data by filling in fields. Personal financial planning sounds complex, but it consists of three basic tasks: First, you need to make sure that you manage your day-to-day finances in a way that keeps your financial affairs simple and hassle free. (If you use the Money program to keep your checkbook and other financial records, you are already doing this.) Second, personal financial planning means identifying and then prudently preparing for long-term financial objectives, such as a comfortable retirement, sending a child to college, or making a major purchase, such as a house. You can spend an enormous amount of time planning for these sorts of major events, but you don’t have to because the planning process isn’t all that difficult. In most cases, you can figure out what you need to do to retire quite easily. Numerous books have been written on the subject. The same is true of other financial objectives—if you take advantage of well known and popularly discussed tools, it is typically not that difficult to prepare.

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The third element of personal financial planning is the mitigation of financial risks where possible. This is perhaps the least understood and most overlooked task of personal financial planning. In a nutshell, you need to make sure that a personal tragedy, such as loss of life of a breadwinner or a serious illness, doesn’t become a financial tragedy. Obviously, you can’t prevent personal tragedies. Parents die, children get terrible illnesses, and catastrophic events, sometimes forces of nature, destroy property and wreak havoc on people’s lives. However, in all of these cases, you can usually buy insurance that lets you share the cost of these financial disasters with large groups of other people. Then if you happen to become the next unfortunate victim, you will at least receive a claim payment that minimizes or eliminates the financial costs.

How do I plan for retirement? Retirement planning is not difficult. The goal is to make sure that you have an adequate income so that you can live the way you want even though you are no longer receiving a paycheck. To plan for retirement, then, you first need to figure out how much money you need to live on when you retire. A good starting point is what you already live on. Obviously, you want to adjust your living expenses estimate for a mortgage that may be paid by the time you retire and for work expenses you may no longer have. Also, you need to adjust your living expenses for any hobby expenses, such as travel, that you don’t have now because you are working, but will have after you retire. Finally, you should be prepared financially for the possibility of an increase in health-related expenses, especially those of a long-term nature, for yourself or for your partner. People throw around a lot of rules of thumb about how much money you need to live comfortably when you retire. One rule of thumb is 80 percent of your working year’s income, for example. But we think the best approach is to look at a budget of your expenses and think about the ways in which that list of expenditures might change when you no longer work.

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After you determine what you need to live on when you are retired, you are ready to begin to figure out where that money is going to come from. Clearly, for anybody who has worked, national pension plans, such as Social Security, are an important factor. In spite of the hand wringing and calls to arms concerning the Social Security benefits that U.S. residents may or may not receive, we think you can count on Social Security as a source of retirement. If you look closely at the financial condition of the Social Security system, for example, the trust fund doesn’t actually run out of money until some time in the 2030s. (The last estimate we saw was the year 2037.) Even when the system does “run out” of money, Social Security tax receipts will still pay roughly three-quarters of Social Security benefits. This means, for example, that someone receiving a $1,000 check for the year 2037 might, in a worst-case scenario, see benefits reduced to $750 when the trust fund runs out of money. Such a shortfall isn’t as serious as it seems. In order to make sure that you could afford to have a $250-a-month drop in your Social Security benefits thirty years from now, you would need to save an extra $6 or $7 a month. In other words, if you increase your savings for retirement by $6 or $7 a month, you accumulate over thirty years a large enough amount of money that the investment income from this extra savings would more than pay an extra $250 a month. After you have identified how much money you need during retirement, and have some idea what you will receive from Social Security and any other pensions, you need to calculate how much money you have to save in order to amass an investment portfolio that will provide any additional income. The safest way to make the first part of this calculation—the calculation of how much money you need at the start of retirement in order to provide dependable retirement income—is simply to divide the amount of annual investment income you need by an appropriate rate of return. For example—and just to make the calculations easy— suppose that you want to receive $50,000 of annual retirement income from your investment portfolio when you retire. Further suppose that you expect to be able to earn a rate of return equal to 5 percent during retirement. To calculate how much money you need at the start of retirement in order to earn $50,000 of retirement income, divide $50,000 by 5 percent. The result is $1,000,000.

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An important variable here is the rate of return that you expect on retirement. Particularly tricky is the fact that you need to deal with inflation that occurs over the years when you are retired. We recommend using a “real” rate of return, which is a rate of return that has been adjusted for inflation by subtracting the inflation rate from the rate of return. By using a real rate of return, you don’t need to worry about inflation. In effect, you subtract inflation from the rate of return and therefore from your future financial forecasts. Real rates of return should typically run 3 percent to 7 percent. You can, for example, buy bonds from the U.S. Treasury that will return a real rate of return equal to approximately 3 percent. In other words, the bond will pay whatever inflation is, plus 3 percent. Over time, the stock market has produced real returns of around 7 percent. We recommend that you use a 5 percent real return for calculations of your income during retirement. You sometimes see people using higher real rates of return, such as 6 percent or 7 percent. That might prove true over a long period of time. However, computer studies show that it is hard, or at least risky, to spend a 6 percent or 7 percent real rate of return over the years you’re retired. You can’t really rely on a 7 percent return year in and year out. Some years you will receive less, and some years you will receive more. After dividing your annual retirement income by the real rate of return—and thereby calculating how much you need to accumulate—you need to use a financial calculator to determine how much you have to save on a monthly basis in order to amass the retirement nest egg you need. Unfortunately, Money doesn’t provide such a financial calculator in its features set. You can locate in several other places a financial calculator that will make this computation, however. If you have a copy of Microsoft Excel, for example, you can use Excel to make this calculation. If you have a handheld financial calculator, you can also use it. See the calculator’s documentation for step-by-step instructions on how to do this. You can also use a trial-and-error method by employing the financial calculator at the Redmond Technology Press web site, at www.redtechpress.com. Follow the links to the Ask The Expert Guide To Microsoft Money 2001 page, and then click a hyperlink to display a simple financial calculator. Experiment with various savings plans to see which produces a final balance equal to the amount you need to save.

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NOTE The Redmond Technology Press web site is www.redtechpress.com.

In general, you want to save for retirement using individual retirement accounts (IRAs) or 401(k) or 403(b) accounts. The tax savings and employer matching amounts you receive by using these sorts of accounts typically provide much of the money you need to save. In fact, it is not unrealistic to assume that most of the money you need to save for retirement will come from these other sources. The www.redtechpress.com web site also includes a second financial calculator that lets you see how much of the money that you need for retirement can come from these other sources—specifically, tax savings and employer matching contributions. NOTE The Redmond Technology Press web site includes instructions for using both of the simple financial calculators.

How do I plan for a child’ child’ss college expenses? College expense planning works similarly to retirement planning. The goal is to save enough money in the years before a child goes off to college to pay for four or five years of tuition. The first step is to make an estimate about what the child’s college expenses will total. Every year, major U.S. newsmagazines, such as US News and World Report, provide comprehensive lists of college cost information. Obtain one of these magazines and estimate what college will cost when your son or daughter attends. After you determine the cost, you then calculate the amount you need to save. The tricky part of saving for college is that you often can’t use investment choices that deliver high real rates of return. In fact, it’s common that you will be saving for college using investment choices that don’t deliver a positive after-tax real rate of return. What this means, unfortunately, is that in many cases you can produce a fairly accurate estimate of how much you need to save for college simply by looking at the total cost of college and dividing this amount by the number of months between now and the time your child attends. NOTE If you are beginning to save money while your child is still an infant, you may feel comfortable investing in the stock market, which will return a positive aftertax real rate of return.

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Chapter 14

TAX PLANNING AND PREP ARA TION PREPARA ARATION

Questions Answered in This Chapter • How do I track my tax data? • How do I summarize my tax data? • How do I estimate my income taxes? • How do I export tax information? • How do I use a tax preparation program? For anybody who has to pay federal or state income taxes, one of the biggest advantages of using Microsoft Money 2001 to keep your financial records is that you automatically collect all the information needed to prepare your income tax return. Specifically, by using categories in your checking account record keeping that match the lines that you need to feel out on your tax return, you automatically have at your fingertips all your deduction data.

How do I track my tax data? To track your tax deductions and other tax-related data using Money, you simply need to categorize any tax deduction or other tax item using an appropriate category. For example, if you write a check to pay your real estate property taxes—this is a deduction for both federal and state income tax returns—you need to use a category that tracks this amount. By doing this, you can produce a year-end report that summarizes the amounts you have spent in this “real estate property tax” category, and that total goes on your tax return. 229

One warning is in order here, however. For many income and deduction amounts, you must use the amount reported on the informational return supplied by the person paying the amount or receiving the amount. For example, don’t use your records of wages for reporting your wages on a tax return. You need to use the wages information supplied on the return provided by your employer. For wages information, this informational return is the W-2 you receive after the new year starts. Similarly, many other income and deduction amounts need to come from the informational returns— not your Money records. If there is a disagreement between your Money records and the informational return, you need to either assume the return is correct and go with that number, or perhaps, using your Money records, contact the person or firm that supplied the return and get them to issue a corrected return.

How do I summarize my tax data? Money’s Reports window includes a Tax Reports category that supplies all the reports you need or will want for tax planning and preparation. To display this list of tax-related reports, click the Taxes link and then choose Tax Reports. Money displays the Pick A Report Or Chart window, as shown in Figure 14-1. The first three reports summarize tax-related transactions, capital gains, and loan interest, respectively. The fourth report summarizes tax-related data by Internal Revenue Service form. You can use this information to complete paper-based tax return forms or in tax preparation software.

Figure 14-1 The Pick A Report Or Chart window.

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NOTE For information about producing and printing reports, refer to Chapter 4.

How do I estimate my income taxes? Money supplies a calculator you can use to estimate your taxes. To use this calculator, click the Taxes link and then choose Tax Estimator. When you do this, Money displays a form you can use to provide information about your tax situation and estimate what you owe or will owe in taxes for the year, as shown in Figure 14-2.

Figure 14-2 The tax estimation form.

How do I export tax information? To export tax deduction data from Money to your tax preparation program, you produce a tax software report. To do this, click the Taxes link and then select Tax Reports so that Money displays the Pick A Report Or Chart window. Then double-click Tax Software Report. To complete the process, simply review and use the information as appropriate. Here’s another warning: You probably don’t want to export tax deduction data from Money’s tax preparation program. You need to supply only a half a dozen to a dozen numbers anyway. In many cases, these numbers must come from the informational tax forms supplied by the payer of some amount for the recipient of some deduction. They shouldn’t come from your Money records.

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How do I use a tax preparation program? In a nutshell, tax preparation software programs simply walk you through the steps of preparing your federal and state income tax returns. These programs ask you a long list of questions and then, based on your answers, fill out the appropriate tax forms. Tax preparation software programs come in two varieties: a stand-alone program that runs on your desktop or laptop computer and a web program that you access using your web browser and Internet connection. While, theoretically, the web-variant of tax preparation software should work just fine, we recommend that you go with standalone software that is installed on your computer. If you use web tax-preparation software, your tax return gets stored on the web server—or at least some of your tax data does. Because there have been problems with data security and privacy on web servers, you are better off using a stand-alone program. Although tax preparation software works very well for most people, the software doesn’t meet everyone’s tax preparation requirements. If you have a complicated return with numerous special situations involving investments or a small business, you probably won’t be able to easily prepare your return using tax preparation software. And, in fact, you may find it impossible to prepare your return even if you want to. Tax preparation software can’t replace the help that an expert tax advisor supplies. To use tax preparation software, simply type information into fields, answer questions by clicking buttons, and make selections by checking boxes. The program performs any calculations. NOTE One other noteworthy feature of tax preparation software is that you can often file your return electronically if you use this software. Electronic filing saves you time, and supposedly reduces the risk that your return will be audited and speeds your refund. (Tax preparation software reduces the risk that your return will be audited because this software eliminates simple mathematical errors on the return, and mathematical errors often result in audits.)

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Chapter 15

ACCOUNTING FOR A BUSINESS

Questions Answered in This Chapter • What should I look for in a small business accounting program? • How do I track income? • How do I track expenses? • How do I measure profits? • How do I measure cash flow? • How do I do payroll? • How do I prepare a balance sheet? • How do I prepare business income tax returns? • What should I do if I outgrow the Money program? Microsoft Money 2001 works well as a small business accounting package, as long as your accounting requirements are not too complicated. With Money, you use a checkbook to keep your record of business income and business expense. NOTE Money also has a rather unique advantage as compared to more sophisticated small business accounting solutions: Because your record-keeping tool is quite simple, it is therefore much easier to use.

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What should I look for in a small business accounting program? A small business accounting program should accomplish three tasks: track income and expenses, generate business forms, and keep detailed records for other assets and liabilities.

Tracking Income and Expenses The task of tracking a business’s income and expense is really the most important job of an accounting system. If you own or manage a small business, obviously, you need some tool for measuring your income and your cash flow. Although Money does little more than keep a checkbook, you can actually keep financial records for a business right out of a checkbook. To do this, you simply categorize deposits as falling into some income category. And when you write a check or make some other withdrawal, you categorize expenses as falling into some expense category. One problem with using a checkbook program such as Money, however, is that by using a checkbook program, you are implicitly using cash-basis accounting to track your income and expenses. NOTE Cash-basis accounting counts income when you receive a deposit and counts expense when you write a check.

Cash-basis accounting is easy to understand, and that means you are less likely to make errors in implementing it. However, cash-basis accounting is generally too imprecise for more complicated businesses. If you use inventory in your business, for example, cash-basis accounting isn’t very accurate—and the Internal Revenue Service does not allow it. And there are other circumstances, too, in which cash-basis accounting produces serious and usually unacceptable errors in precision. For example, if you often receive money before you have actually earned it or if you often incur expenses long before you actually have to pay for them, you need to use a more sophisticated accounting program than a checkbook program.

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Generating Business Forms The second task that a small business accounting program should help you with is the generation of business forms. The most common business form is simply a check. And of course Money and any other checkbook program help you do this. Other business forms that small businesses commonly need to produce include invoices, credit memos, monthly statements, purchase orders, and so forth. If you have a small business with very simple form requirements—perhaps you need only checks—then the Money program may work very well for you. However, if you have extensive or complicated business-form requirements, a more full-featured small business accounting package, such as Intuit’s QuickBooks or Peachtree’s Complete Accounting, will do a better job for you. NOTE If you produce more complicated forms, but you produce these other forms with a word processing program, then the Money program may still work for you.

Detailed Record Keeping for Other Assets and Liabilities The third task that a small business accounting program should help you with is detailed record keeping of your most important assets and liabilities. A checkbook program lets you keep good detailed records of cash, and for some businesses that is the principal asset. But many small businesses have other significant assets and liabilities they need to track, for example, accounts receivables, inventory, and vendor payables. Whether or not Money’s accounting tools—its check register—provide adequate asset and liability record keeping depends on the situation. However, no small business accounting program does everything you need it to do. Any accounting program that provides an extensive list of features, by its very nature, becomes a challenge to use. For example, moving to the accrual basis of accounting adds an entire layer of complexity to financial record keeping, and keeping detailed records of inventory adds another layer. For these reasons, even when Money doesn’t do everything you need it to do, your best choice still may be to use Money—and then simply live with its shortcomings.

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How do I track income? You track business income using the check register or account register. All you need to do is use a category that counts income. To do this, record a deposit in the usual way and then categorize the deposit as sales, revenue, or sales income. Figure 15-1 shows how an account register might look with a handful of deposit transactions. Note that each deposit transaction records a single sale. Note, too, that the Category field for each transaction records the category as Sales.

Figure 15-1 The account register with deposit transactions recorded as sales.

The one shortcoming when you use Money to record sales in the manner just described is that you count sales only at the point of deposit. You don’t count sales when you provide the goods or services. This means you are using a cash-basis accounting convention for sales revenue. In many cases that works just fine, but you should be aware that this is an imprecise method of measuring your sales. Another problem with cash-basis accounting is that you can’t track those amounts for which you have invoiced customers but for which you haven’t been paid. These amounts, commonly called accounts receivables, can be very significant. A fundamental record-keeping task a small business should regularly undertake is to review these accounts receivables and follow up on any of them that are past due.

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How do I track expenses? To track expenses using Money, all you need to do is use an appropriate expense category when you record an expense. Figure 15-2 shows the same account register as in Figure 15-1, but with several transactions recorded. Note that the Category field records each of these transactions as an expense.

Figure 15-2 The account register with withdrawal transactions recorded as expenses.

As in the case with income transactions, the problem with using this cash-basis approach is that expenses get recorded only when you enter them in the register. This approach may work, but it has shortcomings. For example, by recording bills and expenses only when you write a check, you don’t keep a record of the outstanding bills you owe your vendor.

How do I measure profits? If you use a Money account register to record your income and expenses, measuring profits is very easy. All you need to do is prepare a report that summarizes your income and expenses. Figure 15-3 shows the Spending Habits list of reports. Several of these reports, including the Monthly Cash Flow report and the Category Spending report (the third and fourth reports listed) let you summarize your profits.

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Figure 15-3 The Spending Habits list of reports.

If you choose the Monthly Cash Flow report, for example, Money produces a report such as the one shown in Figure 15-4. This report summarizes your transactions by income and expense categories. The net difference between your income and expense represents your cash profits.

Figure 15-4 The Monthly Cash Flow report.

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One important point to consider when you produce a profit statement is the accounting period. Typically, you want to produce reports that measure profits on a monthly basis, perhaps on a quarterly basis, and on an annual basis. The trick is to pick an accounting period that includes enough income and expense data to fairly and meaningfully summarize a time interval of business activity. An extreme example shows what we mean. You probably don’t want to produce daily profit statements because they don’t contain enough information to be meaningful. The fact that you don’t write a check one day doesn’t really mean that you didn’t incur expenses. And the fact that you did or didn’t receive a deposit one day doesn’t mean that the day is particularly good or bad. In general, longer accounting periods, (months, quarters, or even years) are better than shorter ones, such as days or weeks. Professional accountants typically prepare profit and loss statements on a monthly and annual basis.

How do I measure cash flow? Because Money forces you to use cash flow accounting, a business profit and loss statement is essentially equivalent to a cash flow statement. This means that to produce a cash flow statement you follow the same sequence of steps as you would to produce a profit and loss statement. NOTE The Date Range box at the bottom of the Pick A Report Or Chart window lists a series of common date ranges. Date ranges, in effect, identify the accounting periods you will use as a basis for preparing profit and loss and cash reports.

How do I do payroll? Payroll accounting represents the most complicated record keeping and bookkeeping task that small businesses do. The only other activity that even comes close is preparing a corporate tax return. Payroll accounting and recording requirements are extremely onerous. When you do your own payroll, you have to meet certain federal requirements for categorizing, tracking, and recording the amounts you pay your employees. You will have a series of only slightly less onerous requirements for reporting the amounts that you pay as an employer. State and local agencies also get into the payroll accounting process by requiring you to report wages and salaries paid and then pay taxes on those salaries and wages. These requirements, of course, vary by location. Accounting for a Business

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For these reasons, we suggest that you pay an outside agency or individual to do the work. This might sound like shirking responsibility, but it is a very common decision for small businesses to make. This service often isn’t expensive—as little as $20 a month. But it saves you an enormous amount of work by greatly simplifying your financial record keeping. If you choose to prepare payroll yourself, and this might make sense if you prepare only a handful of checks a year or if you have only one or two employees, you can do so using the Money program. Before you begin, you must obtain the appropriate payroll preparation instructions from both the federal and state government. Call the local branch of the Internal Revenue Service to get the federal payroll preparation instructions, otherwise known as Circular E. The Circular E booklet will tell you exactly how to prepare payroll checks—including the handling of payroll tax deductions and later payment of withheld amounts. You also need to locate and read the equivalent state payroll preparation instructions. With this information, and a bit of work, you can prepare payroll checks for employees. The Category field—actually the Split Transaction dialog box—lets you show your employees’ gross wages and tax deductions.

How do I prepare a balance sheet? The What I Have and What I Owe groups of Money reports let you prepare a good list of account balances. These account balances, in combination, amount to a balance sheet. A balance sheet is a summary of what a business owns and what it owes. Figure 15-5 shows the Pick A Report Or Chart window after clicking the What I Have link. The first report listed—the Net Worth report—amounts to a business balance sheet.

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Figure 15-5 The Pick A Report Or Chart window.

One common accounting convention is to prepare a balance sheet for the last day of the profit measurement or accounting. In other words, if you prepare a profit and loss statement, or a cash flow statement, for the month of December, you would typically also prepare a balance sheet for December 31. The Net Worth report prepares a balance sheet for the current system date. However, you can easily change the date used to prepare the report. To do this, first prepare the report in the usual way. When Money displays the report, right-click the As Of Date field and then choose Change Date from the shortcut menu. Use the Change Date dialog box to pick the date you want.

How do I prepare business income tax returns? Using Money for business accounting greatly simplifies the preparation of your annual income tax returns. In essence, all you need to do is prepare the report that summarizes your profits and losses and then transfer the information from this report to your tax return. Sole proprietors report only profit and loss information on their Schedule C or Schedule C-EZ return, for example. So Money’s profit and loss statement provides every bit of data you need. If you do business as a corporation, you are required to provide some balance sheet data as a part of the corporate tax return. To provide this data, you will also need to prepare a net worth statement as of the last day of the year.

Accounting for a Business

241

Prepare your tax return using the Profit and Loss Statement report and a balance sheet, or Net Worth report. Don’t export data from the Money program directly to your business tax preparation program though. While exporting might seem to be a time saver, it actually hides some of the data that gets plugged into various input fields on your return. This hiding of the data and the data transfer can sometimes produce errors. For this reason, you are better off using the reports as data sources and then entering this information by hand into the tax preparation program. Fortunately, for a small business there isn’t much data entry to do. You will have only a few numbers to move from the Money report to the tax preparation program.

What should I do if I outgrow the Money program? If your business grows in either size or complexity, you will eventually want to move up to another small business accounting program—something that provides a richer set of tools and features. Fortunately, you have many good choices for small business accounting software. The most popular program is QuickBooks, or its big brother, QuickBooks Pro. The QuickBooks programs are full-featured, small business accounting programs, which means they do just about everything that a small business needs. Both are also quite easy to use. If the QuickBooks programs have a weakness, it is that their ease-of-use also makes it easy to make accounting errors and to erroneously change data. Another more powerful and more complicated program is Peachtree Complete Accounting. The Peachtree Complete Accounting program is probably the favorite of certified public accountants simply because the program forces you to adhere to a more rigorous, methodical, and safe level of financial record keeping. Unfortunately, and this is really the flip side of its robustness, the Peachtree Complete Accounting software is also more difficult to use. The decision to use one or the other of these programs depends largely on the accounting skills of the person using the package. If you do not have much accounting training, you would be better off with one of the QuickBooks programs. If you have more accounting knowledge, and you have the time to be trained, you would be happier in the long run using Peachtree Complete Accounting.

242

Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

Index A About Microsoft Money dialog box, 15 account balances problems balancing, 45, 46, 47–48 reconciling with bank statements, 39–48 reports, 52, 240–41 accounting, cash-basis vs. accrual-basis, 234, 236, 237 accounting software, 242 account registers data entry and editing rules, 91–94 deleting transactions, 26–27 how long to keep, 59 opening, 18–19 reconciling bank accounts, 39–48 recording ATM withdrawals, 22 recording bill paying, 115 recording checks, 18–22 recording credit card charges, 121–23 recording debit card transactions, 28–29 recording deposits, 23–26 recording mutual fund investment income, 168–70 recording mutual fund reinvestment transactions, 170–73 recording mutual fund sale of shares, 176–78 recording recurring transactions, 22, 30–31 recording transfers, 31–33 splitting transactions, 22–23 viewing downloaded bank records, 116–17 voiding checks, 26–27 voiding deposits, 27

accounts. See also account register asset accounts (See asset accounts) business accounts (See small business) checking accounts (See checking accounts) for credit cards, 119–32 investment accounts (See brokerage accounts; mutual funds; real estate) liability accounts, 133–53 naming, 8 property accounts, 202–3 for real estate investments (See real estate) reconciling with bank statements, 39–48 recording transfers, 31–33 in reports, 52, 60–61 setting up, 7–9 transferring money online, 116 accounts receivable, 235, 236 Accounts Transactions report, 52 accrual-basis accounting, 235 accrued interest, 188–89, 190, 191 Add/Remove Programs tool, 3–4 addresses, payee, 35 adjustable rate loans, 143–46 adjusted cost basis, 217 Advisor FTI, 86 amortizing liability accounts. See also mortgages adjustable rate loans, 143–46 defined, 134 recording payments, 147–48 setting up in Money, 136–43 vs. simple liability accounts, 134 viewing payment schedule, 150–51 when to use, 134 243 Index

archiving files, 71 asset accounts for home mortgages, 143 need for, 143 for real estate investments, 208–10 recording depreciation expense in, 218–19 transferring capital improvement costs to, 217–18 assets, recordkeeping, 59. See also asset accounts associated cash accounts, 179–80, 186, 194 ATM withdrawals, recording, 22 audio help files, 9 automatic transactions, 30–31

B backup files, 70, 73–74, 86–87 balances. See account balances; statements, bank balance sheets, 240–41, 242 balancing bank statements, 39–48 bank accounts. See also accounts creating Money accounts for, 7–9 downloading records, 88–89, 116–17 problems balancing, 45, 46, 47–48 reconciling, 39–48 recording interest earned, 42–43, 46 recording service charges, 46–47 transferring funds online, 116 banking, online. See online financial services banks finding upport for online financial services, 112 selecting, 113 service charges, 46–47 setting up online banking, 10, 113–15 transferring funds online, 116 bar charts, 57 basis, adjusted, and capital improvements, 217 bond premiums, 197–98 bonds accrued interest, 188–89, 190, 191 how to handle premiums, 197–98 recording discounts, 198–99

244

recording interest, 188 recording purchases, 187 recording sales, 190–91 simplifying recordkeeping, 199–200 viewing holdings, 200 zero coupon, 188–89 Bonds Performance report, 53 Bonds Summary report, 53 brokerage accounts. See also mutual funds recording bond purchases, 187 recording bond sales, 190–91 recording cash account transactions, 186, 194 recording dividend income, 187, 195 recording fees, 192–94 recording stock purchases, 186 recording stock sales, 190 setting up in Money, 186 brokers, online, 10, 112 Budget Planner, 221–23 budgets, creating in Money, 221–23 business accounts, cash-basis vs. accrual-basis accounting, 234, 235, 236, 237. See also small business business forms, 235

C calculators financial, 226–27 on Redmond Technology Press web site, 226– 27 calls, 196–97 canceled checks, how long to keep, 59 capital gains recording distributions, 168–70 specifying time cutoff, 97 tracking, 157 Capital Gains report, 54 capital improvements, 217–18 cash accounts, associated, 179–80, 186, 194 cash-basis accounting vs. accrual-basis accounting, 234, 235, 236, 237 cash flow vs. profits, 239

Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

defined, 234 limitations of, 234, 236, 237 recording expenses, 237 recording sales, 236 cash flow statements, 237, 238, 239 categories adding to list, 103–4 assigning to checks, 20–21 assigning to credit card charges, 122–23 assigning to debit transactions, 29 assigning to deposits, 25 for business income and expenses, 236, 237 deleting from list, 104 editing, 104–5 IRS Schedule E, 202–3 modifying list, 102–6 moving, 105 multiple, 22–23 options for real estate investments, 96–97 renaming, 104 in reports, 62 restoring default list, 106 setting up for real estate investments, 203–5 splitting transactions, 22–23 tax-related, 105 Category Spending report, 52 certificates of deposit, 187, 189 Change Loan dialog box, 144–46 charts creating, 56–58 customizing, 63 how long to keep, 59 printing, 58 checkbook. See account register; checks checking accounts assigning checks to one or more categories, 20–23 deleting transactions, 26–27 opening account register, 18–19 printing checks, 33–37 reconciling, 39–48 recording ATM withdrawals, 22

recording business expenses, 237 recording business income, 236 recording checks, 18–22 recording deposits, 23–26 recording paychecks, 23 recording recurring transactions, 22, 30–31 recording transfers, 31–33 setting up in Money, 7–9 splitting transactions, 22–23 check numbers, 19 check register. See account register checks. See also checking accounts changing printer options, 109–10 customizing printing, 106–8 signing, 37 simple printing, 33–37 voiding, 26–27 writing, 19–20 children, saving for their college expenses, 227 classification, property, 203, 205–8 college, planning for, 227 color schemes, 85 columns, in reports, 65–66 comments, adding to transactions, 21 commodities, 197 converting Quicken files, 78–79 Credit Card debt report, 53 credit cards categorizing charges, 122–23 contesting charges, 132 downloading online statements, 131–32 paying off balance, 130–31 reconciling accounts, 126–29 recording charges, 121–23 recording credits, 124–25 recording interest charges, 130 recording payments, 121–23 recording service charges, 129–30 setting up Money accounts, 120 when to track in Money, 120 currencies, multiple, 6, 99–101

Index

245

Customize Report dialog box Account tab, 60–61 Amount tab, 61 Category tab, 62 Chart tab, 63 Date tab, 63–64 Details tab, 64 Fonts tab, 65 Payee tab, 66–67 Rows & Columns tab, 65–66 Text tab, 67

D data files. See files dates entering, 20, 24 in reports, 63–64 debit cards, recording transactions, 28–29 debts. See credit cards; liability accounts deductions, tax. See taxes deleting transactions. See voiding deposits. See also income automatic, 30–31 business income, 236 recording, 23–26 recurring, 26, 215–16 rental income, 211, 215–16 voiding, 26–27 depreciation, recording as real estate investment expense, 218–19 derivatives, keeping records, 196 distributions, recording, 168–70 dividends liquidating, 195 paid in stock vs. cash, 192 recording income, 168–70, 187, 195 reinvesting, 170–73 vs. stock splits, 192 downloading bank account records, 88–89, 116–17 credit card statements, 131–32

246

E early mortgage repayment, 152–53 electronic payments. See automatic transactions; online bill paying employee stock option investments, 197 employee stock options, 97 errors and bank statement reconciliation, 47–48 correcting loan information, 146–47 escrow accounts, for property tax, 150 estimating taxes, 231 exchange rates, 100 expenses real estate, 216–19 recurring, 22, 30–31 for rental property, 212 small business, 237

F Favorites list, adding reports to, 51 fictitious transactions, 47–48 files archiving, 71 backup, 70, 73–74, 86–87 creating, 75–76 deleting, 81–82 exporting, 80–81 location of, 70–71 multiple, 76–77 naming, 70 opening, 76–77 switching between, 76–77 financial planning Budget Planner, 221–23 changing Planner assumptions, 98–99 Lifetime Planner, 223–24 Loan Planner, 151 overview, 223–24 finding help topics, 12–14 text strings for reports, 67

Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

fonts, in reports, 65 forgotten transactions, 47 forms, business, 235 Frequent Flyer Miles report, 52

G graphs. See charts

H help, online, 12–15 home. See mortgages; real estate home banking. See online banking home page, Money, 14, 15 How I’m Doing on My Budget report, 52

I importing Quicken files, 79. See also converting Quicken files income. See also deposits from dividends, 168–70, 187, 195 preparing real estate reports, 212–15 from rental transactions, 211, 215–16 smalll business, 236 Income vs. Spending report, 213–15 individual retirement accounts, 157 Installation Wizard, 2–3 installing Microsoft Money using Add/Remove Programs tool, 3–4 using Installation Wizard, 2–3 interest accrued, 188–89, 190, 191 on bank accounts, 42–43, 46 on bonds, 188 on certificates of deposit, 189 interest rates adjustable rate loans, 143–46 updating liability accounts, 146 Internal Revenue Service. See also taxes how long to keep records, 59 Schedule E categories, 202–3

Internet connection options, 90–91. See also Web sites investing, online signing up for, 10 investment accounts. See bonds; brokerage accounts; mutual funds; real estate; stocks Investment Transactions report, 53 IRAs, 157 IRS. See Internal Revenue Service

L liability accounts. See also mortgages adjustable rate loans, 143–46 amortizing-type, 136–43 changing loan terms, 147 recording payments, 147–48 setting up in Money, 134–43 simple-type, 134–35 simple vs. amortizing, 134 updating interest rate, 146 viewing payment schedule, 150–51 Lifetime Planner, 223–24 line charts, 57 liquidating dividends, 195 lists. See categories; payees loan accounts. See liability accounts loan amortization schedule, 150–51 Loan Interest Report, 54 Loan Planner, 151 loans. See also credit cards; liability accounts; mortgages adjustable rate, 143–46 changing information, 146–47 comparing using Loan Planner, 151 creating liability accounts, 134–43 principal vs. interest breakdown, 148–49 providing tax information to IRS, 149–50 refinancing, 151–52 reports, 53, 54 updating interest rate, 146

Index

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M margin interest, recording, 195 Memo box, 21 mergers, recording in financial records, 194–95 Microsoft Money backing up files, 70, 73–74, 86–87 Budget Planner, 221–23 creating files, 75–76 customizing, 83–110 data file location, 70–71 getting started, 12 home page, 14, 15 installing by using Add/Remove Programs tool, 3–4 installing by using Installation Wizard, 2–3 Lifetime Planner, 223–24 Loan Planner, 151 need for upgrading, 11 online help, 12–15 opening files, 76–77 outgrowing, 242 restoring backup files, 74–75 vs. small business accounting software, 242 starting, 4–5 switching to or from Quicken, 11, 78–81 system information, 15 web page, 14, 15 Microsoft Windows, 2 .mny files, 70 Money. See Microsoft Money money. See currencies, multiple Money Express, 15 Money Setup Assistant, 5–9 Monthly Cash Flow report, 52, 237, 238 monthly reports, 51, 59 mortgages comparing using Loan Planner, 151 viewing loan amortization schedule, 150–51 when to refinance, 151–52 when to repay early, 152–53 multimedia videos, 15

248

mutual funds. See also brokerage accounts and expense ratios, 182–83 keeping records, 156 measuring performance, 158 obtaining account summary information, 180–81 recording cash account transactions, 179–80 recording distributions, 168–70 recording dividend income, 168–70 recording fees, 192–94 recording other income and expenses, 178–80 recording purchases, 161–68 recording sales, 175–78 reinvesting dividends, 170–73 reports, 53 selecting, 182–83 setting up Money accounts, 158–65 tracking capital gains, 157 tracking investment income, 156 updating share price information, 173–74 My Documents folder, 70 My Favorites, adding reports to, 51 My Money file, 70

N naming accounts, 8 Net Worth reports, 52, 240–41, 242 New Account Setup Wizard, 134–43 New Category Wizard, 204–5 New Class or Subclass dialog box, 207 new files, creating, 75–76 New Investment dialog box, 163–65 New Loan Account Wizard, 136–43 nondeductible IRA accounts, 157

O online banking defined, 112 downloading bank account records, 88–89, 116–17 electronic bill payment, 112, 115–16

Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

online banking continued reconciling accounts, 117 signing up for, 10, 113–15 transferring funds between accounts, 116 online bill paying defined, 112 how to use, 115–16 recording transactions, 115 sending electronic payments, 116 online brokerage, 10, 112 online financial services, 88–89, 112. See also online banking; online bill paying; online brokerage online help, 12–15 opening account registers, 18–19 files, 76–77 Options dialog box Backup tab, 87–88 Bills And Deposits tab, 101–2 Connection tab, 90–91 Currencies tab, 99–101 Editing tab, 91–94 General tab, 84–85 Investments tab, 94–97 Online Services tab, 88–89 Planner tab, 98–99 Print Checks tab, 106–8

P passwords, for Money data files, 71–72 paychecks, recording information, 23 payees addresses for, 35 lists of, 20 in reports, 66–67 Payee Spending report, 52 payroll, 239–40 Peachtree Complete Accounting program, 242 Performance By Investment Account report, 53 Performance By Investment Type report, 53 personal financial planning, 223–24 Pick A Report Or Chart window, 54

pie charts, 57 Portfolio Manager, 95–96 portfolio reports, 53 Portfolio Value By Investment Account report, 53 Portfolio Value By Investment Type report, 53 precious metals, 197 Price History report, 53 printer, setting up, 109–10 printing. See also reports changing check options, 106–8 changing printer options, 109–10 changing report options, 108–9 charts, 58 checks, 33–37 reports, 58 profits, measuring, 237–39 property accounts. See mortgages; real estate property classifications, 203, 205–8 property tax, 150 puts, 196–97

Q .qdb files, 78 .qdf files, 78 .qdg files, 78 .qif files, 79, 80–81 QuickBooks, 242 Quicken converting data files to Money, 78–79 exporting Money files to .qif format, 80–81 getting help in Microsoft Money, 14 importing .qif files to Money, 79 switching to or from Microsoft Money, 78–79

R real estate creating asset accounts, 208–10 creating property classifications, 203, 205–8 options for investment categories, 96–97 preparing cash flow statements, 212–15 preparing income statements, 212–15 Index

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real estate continued recording depreciation expense, 218–19 setting up investment categories, 203–5 tracking capital improvements, 217–18 tracking investments, 202–3 tracking property improvements and repairs, 216–18 tracking rental income and expense, 211–12 tracking repairs, 217–18 real estate investment trusts (REITs), 202 reconciling bank accounts accounting for interest earned, 46 accounting for service fees, 46 failure to balance, 45, 46, 47–48 how it works, 39–40, 117 online accounts, 117 step by step, 40–44 undetected errors, 47–48 reconciling credit card accounts, 126–29 recording amortizing loan payments, 147–48 ATM withdrawals, 22 bank account interest earned, 42–43, 46 bank account service fees, 46–47 bond purchases, 187 bond sales, 190–91 business expenses, 237 business income, 236 capital gains distributions, 168–70 checking account transactions, 18–26 checks written, 18–22 credit card charges, 121–23 credit card payments, 121–23 debit card transactions, 28–29 deposits, 23–26 loan payments, 147–48 online bill paying transactions, 115 paychecks, 23 recurring transactions, 22, 31 rental expenses, 212 rental income, 211, 215–16 stock purchases, 186 stock sales, 190 250

transfers, 31–33 recordkeeping changing procedures for investments, 94–97 how long to keep records, 59 recurring transactions benefits of using, 22 changing presentation options, 101–2 recording, 22, 31 setting up, 30–31 treating outstanding rent payments as, 215–16 refinancing mortgages, 151–52 register. See account register reinvesting dividends, 170–73 REITs (real estate investment trusts), 202 rentals recording expense transactions, 212 recording income transactions, 211 tracking outstanding rent payments, 215–16 repairs vs. capital improvements, 216–18 repaying mortgages, 152–53 reports account transactions, 52, 60–61 adding to My Favorites list, 51 for bonds, 53 cash flow statements, 237, 238, 239 creating charts, 56–58 customizing, 60–67 how long to keep, 59 how to start using, 50 Income vs. Spending, 52, 213–15 for investments, 53 measuring profit, 237–39 monthly, 51, 59 on-screen, 54–56 overview, 50–54 printing, 58, 108–9 Spending Habits, 52 tax-related, 54, 230, 242 types of, 50–54 undoing customization, 68 What I Have, 52 What I Owe, 53

Ask the Expert Guide to Microsoft Money 2001 - Electronic Edition

restoring backup files, 74–75 retaining records, 59 retirement planning, 224–27 return of capital, 178–79, 190 Roth IRAs, 157 rows, in reports, 65–66

S sales mutual funds, 175–78 recording as business income, 236 stocks and bonds, 190–91 saving for college, 227 schedules, IRS. See Internal Revenue Service searching for help topics, 12–14 Setup Assistant, 5–9 short sales, 195 sign errors, 46 signing checks, 37 simple liability accounts vs. amortizing liability accounts, 134 recording payments, 148 setting up in money, 134–35 small business accounting software, 242 balance sheets, 240–41, 242 cash-basis vs. accrual-basis accounting, 234, 235, 236, 237 cash flow statements, 237, 238, 239 measuring net worth, 52, 240–41, 242 measuring profit, 237–39 payroll, 239–40 preparing tax returns, 241–42 recording expenses, 237 recording income, 236 tracking accounts receivable, 235 tracking assets and liabilities, 235 tracking income and expenses, 234 tracking inventory, 235 tracking payables, 235

sounds, 85 Spending Habits reports, 52 splits, stock, 191–92 Split Shares dialog box, 191 splitting transactions, 22–23 starting Microsoft Money, 4–5 statements, bank downloading records, 88–89, 116–17 reconciling accounts, 39–48 stock dividends vs. cash dividends, 192 stocks buying and selling online, 200 recording dividend income, 187, 195 recording liquidating dividends, 195 recording purchases, 186 recording sales, 190 recording splits, 191–92 viewing holdings, 200 stock splits, 191–92

T tax-deferred accounts, tracking, 157 taxes estimating, 231 exporting information to tax preparation programs, 231, 242 filing electronically, 232 preparing business returns, 241–42 providing loan interest information to IRS, 149–50 and Schedule E categories, 202–3 summarizing, 230 tax-related categories, 105 tax-related reports, 54, 230, 242 tracking data, 229–30 using tax preparation software, 232 Tax Estimator worksheet, 231 tax preparation software, 232 Tax Software Report, 54, 231 This Year’s Budget report, 52

Index

251

transactions. See also account register; brokerage accounts; mutual funds; real estate; small business assigning multiple categories, 22–23 automatic, 30–31 data entry and editing rules, 91–94 deleting, 26–27 fictitious, 47–48 forgotten, 47 recurring, 22, 30–31 splitting, 22–23 transfers, recording, 31–33 transposition errors, 45 tuition, college, saving for, 227

U Upcoming Bills reports, 53 Update Price dialog box, 174 upgrading Microsoft Money, 11

withdrawals. See also expenses automatic, 30–31 recording ATM transactions, 22 recording checks, 18–22 recording debit card transactions, 28–29 wizards Budget Planner, 222 Installation Wizard, 2–3 Lifetime Planner, 223 New Account Setup Wizard, 134–35 New Category Wizard, 204–5 New Loan Account Wizard, 136–43 World Wide Web. See Web sites writing checks, 19–20

Z zero-coupon bonds, 188–89

V videos, 15 video tour, 9 voiding checks, 26–27 deposits, 27

W Web sites browser options, 91 displaying Microsoft On The Web submenu, 14 Microsoft Money home page, 14, 15 Redmond Technology Press, 226–27 Week Starts On box, 85 What I Have reports, 52, 240–41 What I Owe reports, 53, 240 Where the Money Goes report, 52, 56–57 Who is Getting My Money report, 52 Windows. See Microsoft Windows

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T

he manuscript for this book was prepared and submitted to Redmond Technology Press in electronic form. Text files were prepared using Microsoft Word 2000. Pages were composed using PageMaker 6.5 for Windows, with text in Frutiger and Caslon. Composed files were delivered to the printer as electronic prepress files.

Interior Design Stefan Knorr

Pr oject Editor Project Paula Thurman

Indexer Julie Kawabata

Layout Janaya Carter and Stefan Knorr