I think the first thing you realize when you start having more than 1 or 2 bills is that you need some way to keep track of what you’ve paid and how much money you have in your accounts. For my husband and I, we both started using Quicken when we were in College. Quicken gives you the ability to electronically track all of the items that come in and out of your accounts. It also makes it so that you can setup a budget and categorize every item that comes in.
One of the failures that my husband and I started to recognize when we had been married for a few years, is that you always seemed to be dealing with things after they happen. We wanted a way to be able to plan for what was coming and set aside money that couldn’t be touched for specific things. I described this a little bit in my post about not letting the bills control me. When I was 16 and got my first job, I would do this so I would have enough saved up for my car insurance. 1 of my paychecks wasn’t nearly enough to pay for all of my insurance so I would need to set aside a certain amount out of each paycheck in order to have enough. I had a plastic 3×5 notecard box with 1 divider for each thing in my budget (insurance, gas, food, clothing, etc). Every paycheck I would deposit some into savings and take the rest in cash. The cash would be parceled out into each divided section. Thinking back on that time, I really wanted something that could do the same thing for me and yet handle the complications of our current finances.
That was when my husband discovered Mvelopes. It’s a web-based budgeting site (ala Mint.com) that uses the Envelope budgeting system. At first I balked at a subscription-based service but then after some conversation with my husband we decided to take advantage of the 30 day free trial. If at the end of that time I didn’t think it was worth $13 a month, we wouldn’t use it. Needless to say after an initial period of education where we figured out how the application worked, I was in love. I can’t think of not using it and I don’t know what I’ll do if it ever goes away.
The ability to have all of your transactions downloaded just like Mint and Quicken is awesome. It also makes it so that you can put every transaction in the envelope that it falls under. It instantly subtracts the amount of the transaction from the money in the envelope. In fact, I’ve gotten to the point where I no longer look at my account balances except to make sure that they’re not being overdrawn (which never happens any more). I use the envelope balances as the judge for whether or not we can afford to spend money on an item. The fact that you can add your 401k’s and loans makes it so that you can click one button and see your Net Worth at any moment. It’s such a motivator for me when I see it go up and up and up!
Envelope budgeting is definitely a system that requires that you change your perception of how you view your money. You’re no longer looking at the dollars and cents in the account, you’re looking at what’s in the envelopes alone. If it’s in the envelope, you can buy the item but if it’s not you can’t. I’m not sure this budgeting system is for everyone but if you think you’re disciplined enough to follow it, I would definitely recommend it.