Some loans or ‘debts’ are not associated with a transaction account that can be linked to PocketSmith. For example, if you have a Student loan or a Car loan, where no feed is available to connect to PocketSmith. If this is the case, you can add the loan or debt into PocketSmith as a debt using our Asset and Debt feature, then create budgets to forecast your repayments and update the debt balance as it’s paid off.
Tracking a debt in PocketSmith
Setting up a debt on the Net Worth page
For loans or personal debts that don't have a transaction account connected to PocketSmith, you can instead add them as a debt on the Net Worth page. The Net Worth page lets you see all your financial assets and debts, such as your house, home loan, car, and car loan, in one place. Learn how to set up a debt here: Adding a debt to your Net Worth page
Creating categories
Once you have added your loan as a debt, you can create the categories needed to track any payments toward the loan.
The categories you will need (you can tweak each category name to suit):
- Loan Repayments (expense category)
- Loan Repayments Credits (transfer category)
You will categorise your outgoing loan repayment transactions to your Loan Repayments category.
No transactions will be assigned to your Loan Repayments Credits category, as this category is for forecasting purposes only. We will use an income transfer budget for this category to automatically reduce your debt balance each time the budget repeats.
Read on for all the details on creating your budgets.
Setting budgets
Once you have created the categories required, you can now set budgets on these categories 🎉
Expense budget for repayments, main account:
Create a repeating expense budget on your Loan Repayments category, reflecting the amount and frequency of your loan repayment. This is where you will assign your repayment transactions.
For example, if your repayment for your loan is $400/month and you pay this on the 1st of every month, you would create a monthly repeating expense budget for $400:
Note
If you want to see your repayment transaction split to show the interest portion and the principal portion, you can manually split this transaction into two transactions and assign them both to the same category.
Using a budget to reduce the debt balance as it’s paid off
Debts and Assets differ from other accounts in PocketSmith in that they don't include transactions; instead, they use transfer budgets or a manual approach to keep their balances up to date.
The income transfer budget for your Loan Repayment Credits category automatically reduces the balance of this debt, showing that you're paying off this loan! 🎉
When creating the transfer budget for a debt on your Loan Repayment Credits transfer category, the budgeted amount should be set to the principal portion of your loan. That is, your repayment amount less any interest.
Under 'Which account's forecast is this budget for?', select your debt. This will ensure that the transfer budget automatically reduces the debt balance by the budgeted amount each budget period.
Under 'This is a transfer from', leave this blank with no account selected. This should be blank blank as there is already an expense budget for the Loan repayment expense category, reflecting the repayment leaving your bank account.
Note
It's best to begin your budget after the date that the asset was added to PocketSmith.
This is because the current value will override any budget events between the purchase date and the current date (the date the asset was added to PocketSmith).
However, if you'd prefer your budget to begin earlier and have the asset's current balance reflect the original purchase value + budget events, this is possible with a small workaround. Once you have created your budget, just follow the steps outlined here to update your asset balance.
Making adjustments
As you pay down your loan, the portion of your repayments that are for principal and interest will change. This means you will need to update the budget amount for your Loan Repayment Credits transfer budget. We recommend doing this every 3 to 6 months for better accuracy.
Tip
Repeating budgets are easy to edit in PocketSmith; for more information, see our Learn Centre guide here: Deleting or making changes to a repeating budget from the Calendar page.
If you find you need to make balance adjustments to your debt so the balance of your loan in PocketSmith matches the balance you see in your internet banking, you can make these balance adjustments on the Calendar page: Updating the value of an asset or debt from the Calendar page