Managing your money is obviously a very important thing to do. Everyone comes up with a different way of doing it. I have asked lots of people how they do it and I don’t think that any one method is the best for everyone. Some people do it in Excel. Some use Quicken or Mint.com. Some have so much money, they don’t need to think about it. Others have even more money and they pay people to think about their money.
Behind all of these different ways to manage your money, there are two main philosophies behind them. You either create a budget at the beginning of the month and try to spend less than the money you’ve budgeted in each category. Or, you “cash” your paycheck and allocate your cash into different “envelopes” and when you go somewhere you only spend out of that cash that you allocated for that expenditure.
Why Use Envelopes?
Here again, everyone has a different preference. I prefer using envelopes. Here’s why I like it:
- You can always be confident that you’re not using money that you don’t have. When you use a traditional budget, you may budget $400 for the month for groceries. That doesn’t mean that you can go spend all $400 at the beginning of the month. You probably don’t have all the money you budget for the month at the beginning of the month. When you use envelopes, you are limited to the money you have in the envelope and you know how much you can spend.
- It makes it easier to make the once-in-a-while expenditures. Every year, we have to renew the registration on the car. Who knows how much it will be, but I know it happens every year. Without envelopes, I can budget to set aside a little money every month, but there is no simple way to set that money aside and know how much you’ve set aside. With envelopes, I put money in that envelope every month and I can completely forget about it until time comes to pay it. It’s nice not to panic or worry about having money for Christmas, or oil changes.
- Your bank account balance grows (which makes you happier and safer). We’ve been doing this for a while now and every month, we have all the money that we’ll spend at the beginning of the month. For example, November just started and all the money that we need for November is already in our bank account. If something bad happened, we have savings, but on top of that we could already last at least a month.
- Financial communication is easier. If you are married and share funds with your spouse, you have to communicate what you’re spending to the other person. With envelopes, you still have to communicate, but you both know by just looking in the envelope how much you have left for that category of purchases.
The downside to this is obviously that you have to go to the bank to get cash every time you get paid and that you have to find a really safe place for your money in your house.
To solve this, there are some computer websites and programs that simulate the act of putting money into envelopes. All of your money stays in your bank and the website just manages what envelopes it is all split into. When you go to buy something, you just have to check how much is in the envelope and force yourself not to spend more.
The Ideal Setup
I have personally used mvelopes.com for a while now. I had a friend that got me to sign up during a promotion where I paid $60 for a year (a year usually costs $130). I like that it is online and I can access it anywhere and that it is an envelopes budgeting system. However, there is plenty that I don’t like. I don’t like the cost. I don’t like that it is all done in Flash. There are lots of features that I don’t use that confuse me every once in a while (how to handle credit card payments, for one). And there are more negative sides to it that I won’t talk about because I’m not really intending to review mvelopes.com. My point is that I don’t like what I’m using.
I have found other solutions (like You Need A Budget, but I haven’t found one that I want to stick with. My ideal setup would be like this:
- Online so that I can access it from my phone, work, or home without requiring any synchronization.
- Very simple. I want my wife to feel completely comfortable and safe logging in to check balances of our envelopes. Mvelopes.com is too complicated. I know, I know… it’s not that complicated, but it needs to be more simple and it can be.
- Free. Obviously.
- Budget using envelopes. Mint.com is awesome except in this one category. I really like Mint.com, but I like to budget using envelopes even more.
- Generate monthly reports. Since we’re not actually using envelopes and spending with cash, it’s easy to make a mistake and overspend in an envelope. It’s nice to evaluate how we did at the end of every month.
Since I have not found anything that suits all those categories and envelopes budgeting websites are hard to come by, I have decided to write my own. Guess what language I’m using to write it in? If you know me, you probably already knew I was doing this. If you don’t know me, you can probably guess since my last few posts have revolved around it. Ruby on Rails!!! and I’m having a blast doing it. Our year of mvelopes.com will expire within the next couple of months, so I’m really hoping to have it done soon. I’ll let you know when I’m done and I’ll post some screenshots or something.