In This Chapter
A popular, financial self-help writer thinks that one of the secrets to financial success is using other people's money: the bank's, the mortgage company's, the credit people's, your brother-in-law's.... You get the idea.
Me? I'm not so sure that using other people's money is the key to financial success. Borrowing other people's money can turn into a nightmare.
Quicken can help you here. No, the folks at Intuit won't make your loan payments for you. But in a way, they do something even better: They provide you with a tool to monitor the money you owe other people and the costs of your debts.
I think that tracking your debts — car loans, mortgages, student loans, and so on — is a good idea when lenders fail to tell you the amount that you're paying in annual interest or the amount you owe after each and every payment.
If your lenders are doing a good job at keeping you informed, I don't think that using Quicken for this purpose makes much sense. Heck, it's their money. They can do the work, right?
Let me make one more observation. If lenders have half a clue, they send you a United States 1098 tax form at the end of every year. The number shown on that form equals your tax deduction if the interest stems from a mortgage, business, or investment loan. Note that personal interest expenses aren't deductible anymore, so you shouldn't track them unless you really want to be mean to yourself.
To track other people's money with Quicken, you must set up a liability account. Setting up one of these babies is easy. Just remember that you must set up a liability account for every loan or debt you want to track: one account for your mortgage, another for your car loan, still another for your student loan, and so on.
An amortized loan is one on which you make regular, equal payments. Over time, the principal portion of each payment pays off, or amortizes, the loan principal. If you borrowed money to purchase a house, a car, a Winnebago, or anything else that's really expensive and that you pay off over several years, chances are that your loan is of the amortizing variety.
Setting up a loan account requires a few dozen steps, but none of the steps are difficult. And none takes that much time to complete. As long as you have your loan information handy — the loan amount, interest rate, balance, and so on — setting up this type of account is a snap.
Here's the recipe for setting up a liability account:
Click the Add Account button.
The Add Account button appears in the lower-left corner of many Quicken tabs, including the Home page and the Banking tab.
Tell Quicken you want to set up a loan account.
When Quicken displays the Account Setup dialog box, click Loan and then Next. Quicken displays the Loan Setup dialog box. Click the Summary tab to see the dialog box exactly as it's shown here (see Figure 12-1).
Provide some basic background information. Then click Next.
Use the Loan Type option buttons to specify whether you're borrowing money or lending money. Use the New Account text box to name the new loan account something clever like mortgage or car loan. And use the Have Any Payments Been Made? option buttons to indicate, well, whether you've started making payments yet. After you click Next, Quicken displays another set of boxes and buttons, shown in Figure 12-2.
Enter the date that you borrowed the money in the Opening Date text box; or, if your loan has a grace period (like a student loan), enter the date when your loan enters the repayment period.
Quicken needs to know this date so that it can calculate the interest the loan started to accrue when you borrowed the money. The program suggests the current system date as the Opening Date, but this is probably wrong.
Enter the original loan balance.
Enter the original loan amount into the Original Balance text box. You can get this amount, if you're unsure, from the original loan documents.
Enter the loan term in years in the Original Length text box.
If you set up a 30-year mortgage, for example, type 30. You may have to perform one tiny trick when entering this figure: If you set up a loan that includes a balloon payment, enter the number of years over which the loan will be fully paid — not the number of years used for calculating the loan payment. For example, loan payments may be calculated based on a 30-year term, but the loan may require a balloon payment at the end of 7 years. In that case, type 7 in the Original Length text box.
Indicate how often the bank calculates loan interest.
Use the Compounding Period text box to specify how often the bank calculates interest on the loan. The interest-compounding period usually equals the payment period.
Describe how often you make a loan payment by using the Payment Period options.
If you make regular monthly payments, for example, select the Standard Period option button, open the Standard Period drop-down list box, and choose Monthly. If you can't find an entry in the Standard Period drop-down list box that describes how often you make payments, select the Other Period option button and then type the number of payments you make each year in the Payments Per Year text box.
Click Next.
Quicken displays another set of boxes and buttons on the Summary tab (shown in Figure 12-3).
(Optional) Describe the balloon payment (if you have one).
The balloon payment option buttons and boxes let you alert Quicken to any balloon payment you must make in addition to the last regular loan payment. If the loan doesn't have a balloon payment, ignore this stuff and make sure that the No Balloon Payment option is selected.
If the loan does have a balloon payment, select the Amortized Length option button; then use the Amortized Length text box and drop-down list box to specify the number of years or months (or whatever) over which the loan is amortized. If you know that you have a loan payment (and know the loan payment amount) but don't know what the amount is or when it occurs, select the Calculate option button in the Balloon Information area.
Enter the Current Balance if you've made any payments.
If you indicated that you've already made payments on the loan, specify how much you still owe on the loan after making the last payment by using the Current Balance text box. If you don't know the current balance, call the lender and ask for it. If you haven't made any payments yet, skip to Step 12. You know the drill by now. Just move the cursor to the text box and pound a few number keys.
Enter the date as of which the current balance is, well, current.
Use the As Of field to indicate the date for which you've entered the current balance. All the standard date entry and date-editing tricks apply to this text box. You can press the + and − keys, for example, to move the date ahead and back by one day. And you can click that icon at the right end of the As Of text box to display a pop-up calendar.
Specify the interest rate.
Enter the loan's interest rate into the Interest Rate text box in the Payment section in this window. The loan interest rate, by the way, isn't the same thing as the APR, or annual percentage rate. You want to enter the actual interest rate used to calculate your payments. Enter the interest rate as a decimal amount. For example, don't type 7⅝; instead, type 7.625. You should be able to get this rate from the lender or the prospective lender.
(Optional) Describe the payment in more detail (if necessary).
If you've entered all the loan information that Quicken has requested in the preceding steps, you can just select the Calculate option button in the Payment area. Quicken then calculates the loan payment by using the loan balance, term, balloon payment information, and interest rate you entered. If you haven't entered all this information — say, you left out the balloon payment information because you don't know what it is — select the Payment Amount (P+I) option button and then enter the loan principal and interest amount into the Payment Amount (P+I) text box. If necessary, edit the next payment date in the Due On drop-down list box.
If you asked Quicken to calculate anything for you, a dialog box pops up, telling you that Quicken did so. Click OK. Make sure that the Quicken calculations make sense and then click Done again. Quicken displays the Set Up Loan Payment dialog box (shown in Figure 12-4).
Verify the principal and interest payment calculated by the program.
If it's wrong, you can keep going, but let me point out a minor yet annoying problem. You probably entered one of the loan calculation inputs incorrectly, such as the loan balance, loan term, or the interest rate. Fortunately, these errors are only a minor bummer. Later in this chapter (in the "Fixing loan stuff" section), I describe how to restart.
(Optional) Indicate any amounts you pay besides principal and interest.
Click the Edit button. Quicken displays the Split Transaction dialog box (see Figure 12-5), which you can use to describe any additional amounts the lender requires you to pay. In the case of a mortgage, for example, you may be required to pay property taxes or private mortgage insurance. After you enter the information and click OK, Quicken calculates the full payment and redisplays the Set Up Loan Payment dialog box (refer to Figure 12-4).
Indicate how you make payments in the Type drop-down list box.
Choose one of the payment transaction types listed in the Type drop-down list box. Payment means that you handwrite checks; Print Check means that you print checks by using Quicken; and Online Pmt means that you use Quicken Online Banking to make electronic payments.
If you print checks by using Quicken and want to put the payee's address on the check, click the Address button in the Set Up Loan Payment dialog box. Quicken displays a dialog box that you can use to input the payee's address, as shown in Figure 12-6. When you finish providing name and address information, click OK and go get another cup of coffee. When you come back, Quicken will have redisplayed the Set Up Loan Payment dialog box.
Type the lender's name in the Payee text box.
The payee is just the name of the person or business that loaned you the money.
(Optional) Type a memo description.
Does the lender always get mixed up when you send the check? Stick the loan account number in the check's Memo text box. I refrain from using this text box to comment on the fairness of the bank's interest rate, to mock the intelligence of the loan payment processors, or to perform other emotionally gratifying, but generally unproductive, acts.
Type the date of your next loan payment in the Next Payment Date text box.
Enter the interest category.
Open the Category For Interest drop-down list and choose the appropriate category.
Quicken lets you schedule (have Quicken automatically enter) or memorize (just have Quicken remind you to enter) loan payments and electronic payments. I assume that you don't want to be doing this kind of stuff — at least not yet. If I'm assuming incorrectly, click the Payment Method button. Then fill in the dialog box that appears. It's not all that difficult. If you're still confused, I explain how you can use the Calendar to schedule loan payments later in this chapter.
With the Set Up Loan Payment dialog box displayed, click OK.
Quicken removes the Set Up Loan Payment dialog box and asks whether any asset is associated with the loan. If you want to associate an asset with your loan, Quicken walks you through the steps for setting up an asset account. But you know what? Don't worry about setting up an asset account. It actually isn't worth it. Just click No. Quicken displays a new Net Worth tab, or window. You probably want to see the new liability you've set up in its own register, so click the new account. Quicken displays the transaction list register thingy, shown in Figure 12-7.
By the way, I want to apologize to you for describing a 23-step process. I couldn't do anything about it, but I feel bad anyway.
Nobody's perfect, right? You may have made a tiny little mistake in setting up either the loan or the loan payment. This mistake doesn't need to be a major financial or personal crisis, however. Just display the loan account's transactions (such as by clicking the account name in the Accounts bar) and then click the Loan Details button. Quicken displays the View Loans dialog box, as shown in Figure 12-8.
Tip
Hey, can I mention one other thing about the View Loans dialog box? See those two tabs labeled Payment Schedule and Payment Graph? You can probably guess what they do, but if you click the Payment Schedule tab, an amortization schedule shows the interest and principal portions of each loan payment. If you click the Payment Graph tab, Quicken displays a line chart that shows how you pay off the loan balance over time. You may want to take a minute and experiment with these two tabs. They're pretty neat.
If you want to change something about the loan, click the Edit Loan button. Quicken displays the Edit Loan dialog box. It works like the Loan Setup dialog boxes in Figures 12-1 and 12-2. Make the changes and click OK.
To change something about the payment, click the Edit Payment button. Quicken displays the Edit Loan Payment dialog box. Make your changes and click OK.
Before I wrap up this discussion, let me mention a few other things. If you have a variable rate loan, you can click the Rate Changes button to display the Loan Rate Changes dialog box (shown in Figure 12-9). This dialog box has a very simple purpose: It lists the interest rates you entered for a loan and the dates these interest rates were used in loan calculations.
If you want to record new interest rates — because you have a variable rate loan and the interest rate changes, for example — follow these steps in the Loan Rate Changes dialog box:
Indicate that you want to record a new interest rate.
Click the New button in the Loan Rate Changes dialog box or right-click in the dialog box and choose New on the shortcut menu that appears. Quicken displays the Insert An Interest Rate Change dialog box, shown in Figure 12-10.
Provide the effective date of the interest rate change.
Use the Effective Date text box to indicate when the new interest rate becomes effective. You can either type in a date or open the drop-down list box and select a date from the calendar.
Give the new interest rate.
Type the new interest rate in the Interest Rate text box. When you move the selection cursor to a new box, Quicken refigures the loan payment and sticks the new loan payment figure in the Regular Payment text box.
Click OK.
You can delete (remove) and add loans by using the Loan Summary tab in the View Loans window (refer to Figure 12-8).
Delete a loan that you no longer need or shouldn't have added in the first place by clicking the Choose Loan (x) button and selecting the loan account. Then click the Delete button. Quicken then warns you that you're about to delete your loan and asks you whether you want to save the account for your records. Saving the account keeps the account available in your Accounts window but eliminates it in your View Loans window. You can hide the saved account later if you want it to disappear from your Accounts window. (To do so, choose Tools
You can add loans in the View Loans window, too (refer to Figure 12-8). To do so, click the New button in the View Loans window. Quicken displays the Loan Setup dialog box and walks you through the sequence of steps that I describe earlier in the "Setting up a liability account for an amortized loan" section to set up the loan. For example, you fill in both the Loan Setup dialog box (refer to Figures 12-1 and 12-2) and the Set Up Loan Payment dialog box (refer to Figure 12-4).
After you set up a liability account, you're ready to hand over a pound of your flesh — that is, make a payment. Before you say that this phrase is just some sort of populist bull-dweeble, I want to remind you that this metaphor comes from Shakespeare's The Merchant of Venice, in which a loan is guaranteed with a pound of human flesh. Ouch.
After you set up the loan and the loan payment, you're ready to record the payment in (drumroll, please) the register.
I'm trying to make the old Quicken register more exciting for you because you're probably becoming pretty darn familiar with it. And familiarity, as they say, breeds contempt.
Anyway, complete the following steps to record a payment:
Display the View Loans window by choosing Net Worth
If the Net Worth tab doesn't appear, choose View
Display the loan you want to pay.
To do so, click the Choose Loan (x) button in the top of the dialog box and select the loan in the drop-down list.
Click the Make Payment button.
Quicken displays a message box that asks whether the payment you're making is a regular payment (one the lender expects) or an extra payment (perhaps to amortize the loan more quickly). After you select the payment type, Quicken displays either the Make Regular Payment or the Make Extra Payment dialog box. Figure 12-11 shows the Make Regular Payment dialog box; the Make Extra Payment dialog box looks almost exactly the same.
Describe the loan payment.
I'm not going to give you the blow-by-blow account here. If you've gotten this far, you don't need my help. (Mostly, as you know, you just type stuff in boxes.)
Quicken enters the loan payment in the liability register and bank account register. You're done.
I should talk about one minor, mortgage record-keeping annoyance — mortgage escrow accounts.
If you have a mortgage, you know the basic procedure. Although your mortgage payment may be $599.55 per month, your friendly mortgage company (while insisting that it trusts you completely) makes you pay an extra $125 per month for property taxes and other such things. In other words, even though you're paying only $599.55 per month in principal and interest, your monthly payment to the mortgage company is, according to this example, $724.55 ($599.55 + $125).
The mortgage company, as you probably know, saves this money for you in an escrow account or a set of escrow accounts. A couple of times yearly, the mortgage company pays your property taxes; and, a time or two per year, it pays your homeowner's insurance. If you have private mortgage insurance, it may pay this fee every month as well. And so it goes.
The question, then, is how do you treat this stuff? Like with most things, you can take the easy way (which is rough, dirty, and unshaven) or the hard way (which is precise, sophisticated, and cumbersome).
You can choose whichever method you want. It's your life.
Suppose that you do pay an extra $125 per month. You can treat this extra $125 as another expense category, such as Tax:Property or Other Housing or Property Expenses. (I'm just making up these categories. If you can think of better ones, use your own.)
Nice. Easy. No fuss. These words and phrases pop into my head when I think about the rough, dirty, and unshaven method of mortgage escrow record keeping. Figure 12-12 shows a sample Split Transaction window filled out this way. If the Split Transaction window seems like too much fuss, mosey on over to Chapter 4, where I give you the rundown on using it.
I use the rough, dirty, and unshaven method. Let me make a confession, though. This approach doesn't tell you how much moolah you have stashed away in your escrow accounts. It also doesn't tell you how much you really spend in the way of homeowner's insurance, what you're entitled to claim as a property tax deduction, or how much they're bleeding you for private mortgage insurance.
To get these figures, you have to peruse the monthly and annual mortgage account statements — that is, if you get them. Or you have to call the mortgage lender and rattle a cage or two.
Still, with all its shortcomings, I like the easy-to-use, rough, dirty, unshaven method.
You say you can't live with the uncertainty, the stress, the not knowing? Then I have another approach just for you.
You can set up an asset account for each escrow account for which the mortgage company collects money.
You set up asset accounts like you set up a checking account. And, in fact, you should think of escrow accounts essentially as special checking accounts into which your lender deposits money collected from you so that it can pay your property taxes and insurance.
Because I explain this "setting up a checking account" process in Chapter 1, I'll just cover it quickly. You set up an asset account with its starting balance equal to the current escrow account balance. To do so, follow these steps:
Display the Quicken Home page or some other Quicken tab that shows the Accounts bar along the left edge of the window.
Click the Add Account button to indicate that you want to create a new account.
As you step through the seemingly interminable account setup process, identify the account as an asset account and give it a name.
Tell Quicken how much money is in the account as of a specific date.
If you've set up an account or two in your time, this process should take you about 40 seconds.
After you set up your asset account and record its current balance, you're ready to cruise. Record payments in the escrow as account transfers whenever you record the actual loan payment.
You need to do one other thing. When you set up an escrow account, you must record the payments that the bank makes from your escrow account to the county assessor (for property taxes) and to the insurance company (for things such as homeowner's and private mortgage insurance). You don't know when these payments are really made, so watch your monthly mortgage account statements.
When the mortgage company disburses money from the escrow account to pay your first property tax assessment, for example, you need to record a decrease equal to the payment for property taxes and then categorize the transaction as a property tax expense. This process isn't tricky in terms of mechanics. The account increases after every loan payment and decreases after a disbursement.
Basically, the Asset Account register mirrors the Checking Account register. The only difference is that the Payment and Deposit fields are labeled Decrease in the latter and Increase in the former. To get to this account's register, click its name in the Accounts bar.
This second approach doesn't seem like all that much work, does it? And if you use this approach, you can track escrow balances and escrow spending precisely. You can, for example, pull your property tax deduction right from Quicken. Jeepers, maybe I should try the sophisticated approach next year.
Not to bum you out, but your principal-interest breakdown will often be wrong. You may calculate interest expense as $544.55 when your bank calculates it as $544.56. A few pennies here, a few pennies there, and pretty soon, your account balance and interest expense tallies are a few pennies off.
You can try calling the bank, telling whomever you talk to what a bozo he (or she) is, and then demanding that someone there correct your balance. (If this approach works for you, let me know.)
Or (and this method is really more practical) you can adjust your records to agree with the bank's records. Here's how:
Display the register for the liability.
To get to this account's register, you just click the account name on the Accounts bar.
Click the Account Actions button and choose the Update Balance command.
(Go ahead. Tap your keys very hard if you're angry that the bank won't adjust its records.) Quicken displays the Update Account Balance dialog box, shown in Figure 12-13.
Enter the correct account balance (that is, the one that the bank says is correct).
Type the correct figure in the Update Balance To text box. (The amount probably comes from the year-end or month-end loan statement.)
Enter the last day of the month or year for which you're making the adjustment.
Enter a transaction date in the Adjustment Date text box. (You must use a transaction date that sticks the adjustment transaction — which fixes the principal-interest split — into the right month or year.)
Enter your interest expense category.
Type the correct category name in the Category For Adjustment text box. (To see a list of categories, open the drop-down list box.)
Record the adjustment.
When the Update Account Balance dialog box correctly describes the needed adjustment, click OK.
Does the whole adjustment transaction business make sense to you? At times, it can seem kind of backward, so let me throw out a quick observation.
Note
When you record loan payments, you split the loan payment between the interest expense category and a principal account transfer that reduces the liability. Here's what's tricky: When the liability gets reduced either too much or not enough, you must fix the liability balance and the principal-interest split.
Let me give you an example. Suppose that over the course of a year, you record $0.17 too little interest expense — and, therefore, record $0.17 too much principal reduction, despite your best efforts to be accurate. You need to increase the liability account balance by $0.17 in this case, but you also need to increase the interest expense figure by $0.17. By entering the interest expense category in the Category For Adjustment field, Quicken does these adjustments for you. Pretty cool, huh?
Quicken has a couple of nifty features — Scheduled Transactions and the Calendar — that can help you with automatic loan payments.
The Calendar and Scheduled Transactions features may be useful in other instances as well. For example, a business may use the Scheduled Transactions and Calendar features to schedule and plan employee payroll checks, tax returns, and deposits. But I think that they're both most useful in the case of a loan. So I talk about them both here.
If a payment occurs regularly — the payment might be for a loan or some other regular bill, like your cable TV service — you can tell Quicken to remind you about the payment, or you can set it up as a scheduled payment. When you do so, Quicken either reminds you or automatically records the payment for you based on a schedule.
Follow these steps to set up such a reminder or scheduled transaction:
Display the Calendar window.
To display the Quicken Calendar window, you can press Ctrl+K. Or, you can click the Banking tab and then click the Calendar button. Either way, Quicken displays the Calendar window, shown in Figure 12-14. The figure shows a calendar for the current month and, optionally, a list of memorized payees.
Note: If you can't see the list of transactions along the right edge in the Calendar window, click the Options button and then choose the Show Memorized Payees List command from the menu Quicken displays.
Display the first month for which you want to schedule the transaction.
Using the left-arrow and right-arrow buttons, select the starting month for the reminder or scheduled transaction. You can also enter a date into the Go To Date box and click the Go button. Quicken displays the month you want to schedule a payment for inside the Calendar window.
Identify the scheduled transaction and date.
Select the transaction for which you want to create a schedule. In Figure 12-14, for example, you may want to schedule the payment to Movies Galore to fall on the 16th. To do so, select Movies Galore from the payee list by clicking it.
Then drag Movies Galore to the 16th. When you release the mouse button, Quicken displays the Add Transaction Reminder dialog box (see Figure 12-15). Quicken marks the Remind Me option button — which is correct. But note that you can mark the Enter Now option button to have Quicken enter the transaction when you click OK.
Verify that the transaction type is Bill or Payment.
Click the Bill or Payment option button to indicate you're scheduling a payment or a payment reminder. (Of course, if you were setting up some other type of transaction reminder, you might choose something else, such as Income or Deposit or Transfer.)
Verify that the Pay To and Amount fields are correct.
They probably are. But I have kind of a compulsive personality. Because I've been telling you to check all this other stuff, I thought I'd also suggest that you check these fields.
Check the payment scheduling stuff.
Verify that the Next Due Date text box shows the correct date for the first payment. If this is a recurring payment, use the How Often text box to specify how frequently Quicken should remind you about this payment. Finally, if you want to get really crazy, use the option buttons and text boxes to more precisely specify when you want to make payments or be reminded about payments.
Identify how the payment should be made.
Open the Pay From Account drop-down list box and then select the appropriate account. You can also specify the payment method and the check delivery method.
Categorize, tag, and bag.
If you're scheduling a reminder for a transaction you've already correctly recorded once, the Category, Tag, and Memo fields should show the correct information. You should still check them, however. You don't want to have Quicken copy some old error you made. Note that the Tag field only appears if you've enabled the Show Tag Field option in the Register section of the Quicken Preferences window.
Click OK.
Quicken adds the payee's transaction to the Calendar.
Note: When you schedule payments, you may implicitly break your budget. If you've set up a budget and scheduling a payment does "break" the budget, Quicken alerts you. Quicken also asks (in the nicest way possible) if you want to update your budget. For more information about budgeting, refer to Chapter 3.
By dragging payees to the Calendar, you add transactions to the register one at a time, using previously recorded transactions. However, Quicken also allows you to automatically schedule the adding of transactions.
To create these scheduled transactions, you choose Tools
To create a scheduled transaction, click the Create New button and select Scheduled Bill Or Deposit to display the Add Transaction Reminder dialog box that you use to describe automatically scheduled transactions (see Figure 12-17). Note that you can automatically schedule any kind of transaction — loan payments, insurance premiums, child support, or whatever. (I'm describing the automatically scheduled transactions feature here in this chapter, though, because loan payments are one of the most common ways to use this Quicken feature.)
To schedule a transaction, describe the payee, category, and amount; the account to use; the transaction method; and so on. You shouldn't have any trouble figuring out what goes into these boxes. They're the same boxes you use to record a check into the register.
After you describe the transaction, use the Scheduling options to describe the payment schedule. The Next Due Date text box, for example, lets you describe when the first payment occurs. The How Often options let you tell Quicken when you want to be reminded about the payment. The How Often and the Options settings let you describe the payment pattern: every month on the 13th, the second Friday of every month, and so on (see Figure 12-17). You can also use the End On boxes to identify when the payments stop.
The bar along the top of the Calendar (refer to Figure 12-14) provides some other tools that you may want to use. I'm not going to spend much time on them; you'll have more fun trying them out yourself than you would reading about them. Nevertheless, let me give you a bird's-eye view:
The Add Note button lets you post a note on a calendar day. You use this feature to create reminder notes that will also appear in the Alerts area of the Cash Flow Center. For example, you may want to post a note saying Remember Wedding Anniversary on the big day. After you click this button, Quicken displays a dialog box in which you type the message. Then you click Save My Butt. The program also marks the calendar day with a little yellow square — a miniature stick-on note. Click the square to read the message.
The Options button displays a menu of commands that let you specify which transactions should appear in the Calendar, add an account balance graph in the Calendar window, and fiddle with the memorized transactions list. The transactions shown in that list box along the right edge of the Calendar window, by the way, are memorized transactions. (Chapter 4 briefly discusses memorized transactions.)