Saving Money – Creating a System Where Every Dollar Has a Purpose

When it comes to saving money, every dollar has a purpose. This guide will show you how to create T accounts for a budget. A T account is a simple system that helps you track your finances and savings, like a budget within a budget. They are a simple way to keep your saving, and spending, in check and to be sure you always have money for emergencies.

*This post was originally published on August 8, 2013 and updated on January 17, 2020.*

*This post was written by my husband Jesse, the builder of our budget.*

Hands down my favorite part of doing our finances is saving money. There is nothing better than watching a small sum of money turn into a large pile which you then get to blow on vacation, house, remodeling, TV, you name it!

Saving money doesn’t have to be complicated. The biggest tip I have is to remember: Every dollar has a purpose! This is the key to how we do our finances. Each dollar in our bank account that is left over after paying our bills is designated to a purpose. There is no “extra” money. If we have $200 after we do all of our bills that $200 is divided up and put towards a saving purpose. For example, if Ashley wants $40 to paint the bathroom we need to have at least $40 saved in our “fun house” money. We could have money in the bank, but if we don’t have any set aside for the house, we can’t paint the bathroom. 

Creating “T Accounts” to Budget for Saving Money

Let’s work through an example with J&J. In the last section J&J created their household budget, but now they need to budget their savings. J&J are all paid up on their bills and they have $900 in the bank. Before we set up their savings spreadsheet they need to identify what their goals are and what they are saving money for.

After talking it out, J&J have decided they would like to save for a house, a TV, and they would like money to spend on clothes or other fun things. So let’s create a new tab on our spreadsheet called “Savings.”

Now we are going to build something accountants call a “ T account.” Yes, it sounds dreadful and complicated, but I promise it’s not. They are a very simple tool for tracking what is coming and going. Ashley even uses them (and she hates all things math).

Let’s start with creating a “House fund” to save for a down payment. Let’s put “House” in B1 and “description” in A1 and D1. If you want, you can merge cells B1 and C1 to make it pretty looking for our T account.

Now we need to add lines in the shape of a “T”. 

Now let’s add a formula to them. In B20 type “=SUM(B2:B19)-SUM(C2:C19)”. This formula adds up everything on the left and subtracts in from everything on the right. I’ll explain more on how T accounts work later.

That’s a fine looking T account. Go ahead and add two more for “TV” and “Fun+Clothing.” I just copied the first account and renamed them.

We are almost ready to start using your T accounts, but first we need to add an account that is missing. That account is an “Emergency” account. Every budget should have one. Financial gurus are always debating how much money should people should set aside for emergencies. Some suggest $1000, others suggest 6 months of income! 6 months of income, that should only take me a couple years to save!

The truth is you need to decide what is best for your situation. Look at the risks and what could go wrong. Do you rent or do you have a house to take care of? Does your partner work or are you the sole provider? Is your work steady? These are all questions you need to ask yourself and then determine what amount is right for you.

Here is a good example of how allocating your savings can work: When I originally wrote this post in 2013, there was a contractor working on the roof because it was damaged during a storm, Ashley was sick and had to go to the Dr., we were booking our big European vacation, and I was in furlough status at work (meaning I got 25% less take home pay). However, I wasn’t too worried! Because we had set aside emergency money for the house/sickness/job loss and we had saved up all the money for our vacation. So despite income loss, house damages, and sickness, our vacation was still on track!

So, go ahead, and add another account for “emergency.”

So we have our T accounts, but how do they work? Easy. Left In, Right Out. Everything on the left side of the T is adding into the account. Everything on the right is subtracted when it is spent or moved to another account. Let me show you an example.

Let’s add $200 to the TV fund by putting it on the left side of the T account. The descriptions are optional, but they are more helpful for when you spend money.

Score we have $200 saved for the TV. Lets fast forward in time and add $150 and $250.

Notice how the T account added everything up. We’ve got $600 so let’s buy a TV! The TV was on sale and cost us $479, plus we had to buy a surge protector for $33 and some cables for $25. Now let’s put those on the right side of the T account. Remember, Left in Right out.

Notice what happened at the bottom of the T account, it should say $63. That’s because it adds everything on the right and subtracts if from the left. So we added $600 (200+150+250) to the TV fund and spent $537(497+33+25) which left us with $63. Notice how I used the descriptions too, helps me keep track of where my money went.

So now we have a TV but we still have $63 in our TV fund. Since we have a TV now we don’t need a TV fund, so let’s move that money somewhere else. Let’s move it to the house fund. Remember “Right in, Left out”.

So now that we know how to use T accounts lets go back to our J&J example. Go ahead and clear out the previous work from the example we just did.

So J&J have paid all their bills and have $900 in their bank account. They have decided to allocate:

Emergencies: $400
House: 300
TV: 100
Fun+Clothes: 100

Let’s go ahead and enter those in.

Great we have our $900 planned and accounted for! But a bunch of T accounts can be difficult to track and look at. We want to know how much we have saved for each account in total without looking at this mess. This brings us to the last of three tabs that we will have. Go ahead and create a “Summary” Tab.

We want to summarize our T accounts so we can just look at the totals. In cells A1 and A2 lets add “Fund” and “Total”. Now let’s get the information from our “Savings” tab. To do that all we need to do is type “=” in A2 then click on the savings tab, then click on cell B1, and press enter. The formula should read “=Savings!B1”.

If everything worked out you will see “House” in A2 on the summary Sheet. Now lets add the total for the house fund by typing “=” in B2, clicking on the savings tab, then clicking on cell B20, and press enter. The formula should read “=Savings!B20”.

Cell B2 on the summary tab should now read $300. It is showing the value of the cell from the savings tab. If the value changes on our T account it will change on our summary!  For example, if we add $50 to the house fund, the summary will say $350.

Go ahead and add in the rest of the accounts by repeating the steps above.

Let’s add a total now. And add the numbers together by using our “=sum” function.

If everything was entered right you should now see a total of $900! And, all of that money has a purpose. Sure, J&J may not be able to go on a clothes shopping spree, but now they are saving money towards big items they really want long term.

So we’ve learned how to create a budget and how to use T accounts to track our savings and set money aside for our goals, all that’s left is to put it into practice!

What is your strategy for saving money? How do you save up for those big purchases? Do you have an emergency savings built up?

Creating a Budget and Paying the Bills