Earning in one currency, living in another
Budget in the currency you spend, and treat your pay as an amount that converts into it at a rate that moves. How much room the month has for a bad rate depends on the rate you plan at. Each conversion then goes into the record at the rate you actually got.
The rates below are made up for the example. The arithmetic is real.
Budget in the currency you spend
Your rent, your groceries, and your bills are priced in the currency of the place you live. Their amounts do not change when the rate moves. Your pay, counted in that currency, does.
A budget in the spending currency keeps the fixed numbers fixed. Say you are paid in US dollars and live in Ukraine, with rent of 18,000 UAH. In hryvnias, the rent is 18,000 every month. Budgeted in dollars instead, it is 428.57 USD at a rate of 42.00, and 455.70 USD at 39.50. The rent did not change. Only your view of it did.
So the budget needs one currency, the one most of your spending is in, with everything counted in it. Totals in 2 currencies cannot be added up or compared.
Your pay is a range, not a number
Say you are paid 2,000 USD a month. Over the last 12 months, the rate moved between 39.50 and 42.80 hryvnias to the dollar. The same pay was worth this much where you spend it:
| Rate | 2,000 USD becomes |
|---|---|
| 42.80, the year's highest | 85,600 UAH |
| 42.00, today | 84,000 UAH |
| 39.50, the year's lowest | 79,000 UAH |
The gap between the best month and the worst is 6,600 UAH, about 8 percent of the pay. You did nothing different. The rate moved.
A budget set at today's 84,000 is right only if the rate holds. When the rate falls, the month comes up short, and the shortfall lands on the categories you can steer: groceries, eating out, and anything you can put off.
What a cautious rate does
One way to plan is at a rate a few percent worse than today's. Here, 40.00 is about 5 percent below today's 42.00. At 40.00, 2,000 USD is 80,000 UAH, so the month's budget is 80,000.
Here is what that plan does when the pay actually converts:
| Pay converts at | You receive | Against an 80,000 plan |
|---|---|---|
| 42.00 | 84,000 | 4,000 to spare |
| 41.20 | 82,400 | 2,400 to spare |
| 40.00 | 80,000 | Exactly on plan |
| 39.50 | 79,000 | 1,000 short |
At the year's worst rate, the month is 1,000 short instead of 5,000. The cost is a budget 4,000 smaller than today's rate would give.
There is no correct margin. One way to pick it is to look at the lowest rate of the last 12 months and plan near it. A wider margin means more months with money to spare and a smaller budget to live on. A narrower one means the reverse.
Decide in advance what happens to the spare in a good month. Otherwise it is simply spent, and the cushion is gone by the time a bad month comes.
Record each conversion at the rate you got
The rate in the news is not the rate you get, as which exchange rate applies to the thing you just bought explains. When your pay converts, your bank uses its own rate, with its margin built in. Say the reference rate on payday is 41.60, so 2,000 USD should be 83,200 UAH. Your bank gives you 41.20, and 82,400 arrives. The 800 difference, about 1 percent, is what the conversion cost.
Record the income at the rate you actually got, 41.20, so the record matches the account. A record at the news rate shows 800 that never arrived, and the gap grows every month you leave it.
If you convert in several pieces through the month, record each piece at its own rate. What matters to the budget is what arrived, not what the rate was at the moment you planned.
When 2 of you earn in different currencies
A shared budget with one income in dollars and one in hryvnias needs one more decision: the rate at which you compare the 2 incomes. Say you earn 2,000 USD, your partner earns 40,000 UAH, and you split 60,000 UAH of shared costs in proportion to what each of you earns.
- At the planning rate of 40.00, your pay is 80,000 UAH. Together you earn 120,000, so you pay 40,000 of the 60,000, and your partner pays 20,000.
- At 42.00, your pay is 84,000 and together you earn 124,000. Your share rises from 67 to 68 percent, and you pay 40,645 instead of 40,000.
If the split follows the rate, it changes every month, by small amounts that nobody enjoys recalculating. Agree on one rate for the split, such as the planning rate, and look at it again on a date you both know.
Costs that stay in the earning currency
Some spending never leaves the currency you earn: software billed in dollars, a flight booked abroad, or a credit card in dollars. Record those in the currency they were paid in, and let the budget count them in the spending currency at the day's rate. In Skarb, each workspace has one base currency, and a transaction in any other currency stores the day's rate, so every total stays comparable.
Converting the same money twice pays the margin twice. Turning dollar pay into hryvnias, and then back into dollars to pay a dollar bill, costs about 1 percent each way at the margin in the example.
What to do on Monday
- Note how much of a normal month's spending is in each currency.
- Look up the lowest rate of the last 12 months, and write down what your pay was worth at it and at today's rate.
- Compare a normal month's spending with the lower of the 2 numbers.
- When your pay converts, record it at the rate you actually got.