In the past, our budget was just a backwards look at what had already been spent. It seemed like there was never enough money. We didn’t live extravagantly by any means but I was always looking at the numbers. Anxiously calculating what was expected to come in and counting what was going out. Making lists of what we might need money for down the line (new tires, replacing a major appliance). Wondering if we would have enough? We always did but it wasn’t a fun way to live. I would often look at the bank balance and think “well, yes, there’s $2,000 there, but is it all accounted for already? Or is there a little money there that we could do something fun with or go out to eat with?” I’d read all of Dave Ramsey’s books and listened to some of his radio shows online and loved his financial advice. One of the things he suggests is to spend your paycheck on paper on purpose before you even get it. In our first meeting with our financial planner he told us about an online virtual envelope system for managing your household budget called mvelopes.com. It differs from Quicken or Mint.com in that those are a backwards look at what you’ve spent. Mvelopes.com offers the Dave Ramsey style of budgeting, allowing you to plan ahead of time how you are going to spend. This one simple thing — virtual envelopes — single-handedly removed almost all the stress from my life. OK, maybe that’s a slight exaggeration, given the fact that I have 3 little boys all less than 2 years apart, but you get what I’m saying. Here’s how it works. It talks to your bank directly. Instead of going to your bank’s website to check your full balance, you go to mvelopes and log in. It synchs with your bank and pulls up any new transactions for you. You drag the transaction over to the envelope that you have already set up and funded with paycheck money and it adds or subtracts the transaction from the envelopes available funds showing you the new total for that envelope. When you get a paycheck deposited and it shows up in your new transactions, you tell mvelopes how you want it divided up into each envelope. For example, here’s how two monthly paychecks might be spent.
- Mortgage $1100
- Groceries $700
- Savings $100
- Internet/Phone $70
- Childcare $650
- Groceries $700
- Gas Utility $65
- Date Night $250 (one date for my husband and me and one boy date)
- Family Dining out $80
- Fuel (for 2 cars) $325
- Cushion/Misc. $90 (because something always comes up)
- Life/LT dis. Insurance $325
- Oil changes $20
- Savings $300
- Cell phone (1 phone) $55
- Car/Personal Property ins. $70
- Water/Sewer/Trash $100
- Electric $155
- Hair cuts (for whole family) $85
You would have envelopes set up on the mvelopes.com website that correspond to the above items. Paycheck #1 comes in and it gets divided up according to the above plan as does paycheck #2. Before paying a bill, my husband checks to make sure there’s money in the envelope and then pays it. When the transaction comes through mvelopes, I drag it into the envelope and it zeros out. This helps with the once-a-month bills but makes a huge difference with things like gas for the car and groceries. As the gas and grocery transactions come through, it deducts the amount and shows me how much money I have left for groceries until the next paycheck. You can set it up so that you can just click a button and it automatically knows how to fund each paycheck or you can do manually funding.
Honestly, this simple system really did change my life. No longer did I look at a $2,000 bank balance and wonder. I would look at mvelopes.com and see that yes, all the envelopes totaled up to $2,000 but I could see how it breaks down. I can see that we have $40 left in the “family dining out” envelope and I don’t feel like cooking dinner tonight, so let’s go get some Chinese food!
So when someone says to me casually “you should really add another date night” or “you should sign up for a yoga class” I automatically think to myself, well, what mvelope/envelope or budget line item would I get that money from?
Come back on Thursday when I will post part 2 of Minding the Money which talks about how we budget and save for everything else. Christmas, Birthdays, Summer Camp and all the other things that we don’t save for specifically with our monthly income.