Best Envelope Budgeting Software for You
Envelope Budgeting Explained
Envelope budgeting comes from the old way of budgeting when people primarily spent money via cash transactions. The idea was, that when you got paid, you would cash your check, take the money home and distribute it to actual envelopes. That way, you wouldn't spend money for your mortgage on groceries. When the grocery envelope was empty, you had to stop spending until you got paid again.
In today's society, the traditional envelope system doesn't work so well. There are too many ways to spend money, and a lot of times you can't even use cash. The answer is virtual envelopes. The computer can allow you to keep track of your virtual envelope balances, regardless of how you spent the money. There are many different companies that are selling software that will do just that, so which should you choose? Well, that really depends what is important to you.
I just recently went through the process of selecting our budgeting software and I would like to share what I learned. Before making a decision I narrowed it down to three programs.
- Common Cents
- YNAB (You Need a Budget)
I will do a fairly extensive review of Common Cents and mvelopes.com and a less extensive one of YNAB. (I wasn't able to use it as much as the other two.) In the reviews, I will focus on these key features:
- Funding the Envelopes
- Assigning Transactions
- Bank Account Reconciliation
Funding the Envelopes
Common Cents uses Budget Allocations to put income to the envelopes. The set up is a two step process. You set up your income within the income manager. You have to then tie that income to a budget allocation. Within the budget allocation is where you specify where all the money should go. When you get paid you go into the income manager and click the "Enter Now" button. All of your envelopes are immediately updated to their new increased values.
It sounds simple and it really should be, but it wasn't. I found myself always fighting the process. There was no really easy way to change the allocation on the fly. In order to make any kind of adjustment, I had to go into the budget manager, open the budget allocation I had created, make the modifications, save them and then enter the paycheck. It definitely works, but they didn't make it as easy as it should be.
To enter a transaction in Common Cents you simply click on the account that the money was spent from (Checking Account, Credit Card, Cash Account, etc.) and a list of transactions from that account appears. You go to the bottom of the list and Start typing. It is easy enough with one minor glitch, choosing the envelope. The envelope drop down gives you a list of all your envelopes, so scrolling can be tedious if you have a lot. You can just type in the field and it will guess which envelope you need. That works well unless most of your envelopes are a sub envelope to a bigger group. For example, if Fuel is part of Auto, you have to type "Auto/F" before you get to the right envelope. Call me lazy, but I just want to type "f" and have everything that starts with "f" pop up; even if it is a sub category.
This program doesn't have a feature for automatic transaction download. My wife and I preferred the manual entry, so this wasn't an issue for us. It does have an import manager that allows to you to manually download your transactions from your bank and then upload them into Common Cents. This is a feature that I never did test.
Bank Account Reconciliation
Reconciling your personal financial records with the bank statement is an important part of managing your budget. Common Cents gives you this opportunity with its "Reconcile Manager". It was fairly easy to use except for when your records didn't match up exactly with the banks. It would be nice if Common Cents would automatically create a balancing transaction to make up for the discrepancy and then just let you choose whether or not you want to use it.
The developers of Common Cents definitely understand the principle of envelope budgeting and Common Cents has a lot of potential, but it needs some more work. I didn't feel like the work flow was natural enough. Every function is performed within one of the program's "managers" which are essentially just forms for working with the different data tables. It feels a little like you are working in a tricked out access database. Give it a few more iterations at the development table and i'll bet they'll have a pretty good program.
If you are looking for something cheap, this is a good program for you. You can purchase this program for a one time cost of $34.95. It also has one of the best free trial periods. You can download Common Cents with absolutely no commitment for 60 days.
mvelopes.com is a cloud based application which can be good or bad depending on your situation. If you always have an internet connection then you are fine. It is nice to be able to access your budget from any computer; including your smart phone. However, if you have a sketchy internet connection then the delay in performing simple functions might be annoying.
I mentioned being able to access your budget from the smartphone. mvelopes has a simple yet powerful mobile version of mvelopes that works well. They also have an Iphone app, but I have never been able to make it work. It always crashes as soon as I log in.
Funding the Envelopes
mvelopes.com probably has the best system for assigning your income to all your different categories or envelopes. It is super easy. Your paycheck shows up as a new transaction, select it and click "Fund". This opens a window that shows the paycheck amount at top and a list of all your envelopes below. You have two options. You can manually distribute the money to any of the envelopes or you can use a saved funding profile. You can also save any manual distribution as funding profile. The great thing is that you can choose any profile even if it doesn't exactly match the dollar amount of your paycheck. You can then just make whatever adjustments needed to make it work. A+ on funding the envelopes.
Since mvelopes links directly to your accounts the same way that quicken or mint.com does. It makes entering transactions a breeze. (Just on a side note. Wells Fargo charges $3 to have quicken linked to it directly. The same is not true for mint.com or mvelopes.com). Once you link mvelopes to your bank account the new transactions are pulled in as they become available. All you do is drag the transaction to the desired envelope and you are finished. If you want to modify any of the information before hand you can. If a specific transaction needs to be split between envelopes, you can do that as well. They have really made the process an easy one.
Bank Account Reconciliation
Because mvelopes.com links directly with your accounts, the reconciliation process happens every time you manage your budget and assign the new transactions. If you write a check or use a bill pay function from your bank, you can manually enter the payment into mvelopes and it shows up as a pending transaction; your registry balance reflects this accordingly. When the payment does go through at the bank and the transaction shows up on your new transaction list, you simply match the new transaction with the pending. It is a process that works well. I can also look at any one of my accounts within envelopes and it will tell me what my registry balance is as well as the online balance. That is nice to know.
mvelopes.com does a lot for you and as a result can be a little complex. The trick is to just learn how everything works and use it correctly. If you know what you are doing, the work flow really is smooth. It is when you get mixed up on how you are supposed to accomplish something that you can get into trouble. They do have free on-line chat, however, so if you get into a bind, they can help you out. I give it a thumbs up on user-friendliness, but be careful, make sure you do your homework.
This is a draw back to mvelopes. Since it is an online program you pay a subscription rather than a one time fee. The subscriptions go from $7.90 a month to $13.20 a month depending on how many months you pay for in advance.
The trial period on mvelopes is pretty weak as well. They only give you 14 days and you have to give them your credit card information just to start the trial. If you don't cancel a day before your trial is up, the credit card is automatically billed. This is the area where mvelopes got all of its bad reviews. Too many people signed up for the free trial but didn't pay attention to how they would have to cancel. When their credit cards were charged, mvelopes wouldn't budge. So, as a warning, if you are going to sign up for the mvelopes trial, make sure you know exactly how to cancel if you decide not to use it. Go to the FAQ at the website and read the section entitled "How do I cancel my trial membership".
Since writing this Hub mvelopes has changed their pricing. You can now sign up with a free account that you can use forever and never pay. The only things are that you are restricted to 25 envelopes and 4 accounts. Give it a try!
You Need a Budget Book
YNAB (You Need a Budget)
You need a budget is the the software that I wanted to like, but it really just didn't fit with our budgeting mentality. When you sign up for the free trial, Jesse Mecham, the founder of YNAB sends emails to help you understand his budgeting philosophy. His writing style is really entertaining. He has his four rules of budgeting and he walks you through them giving you real life examples and explanations. He really works hard to sell you on his philosophy rather than his software, and that is a little refreshing. If you need some encouragement on starting a budget, I would recommend that you read his blog. He also has a short book to walk you through his 4 rules of budgeting.
I think I was so intrigued by his software and his story, because his is very similar to my own. He was in college, recently married and trying to get a handle on his finances. He turned to excel and created a spreadsheet that fit the way that his brain worked. I was in the same situation and my wife and I did the same thing. Jesse realized one day that he wasn't going to be able to cover some of the costs of life that were approaching so he decided to market his budget. Because of that, the world now has YNAB which is a very powerful piece of software.
Like I say, I wanted to like it. It is very user friendly. The trial is free with no obligation or chance of forced obligation, and it is only $59.95. It just works on a different thought process than my own.
Summary and Conclusion
I finally decided on mvelopes.com. I was a hard decision. I had a really hard time committing to paying almost $8.00 a month for my budget. But after I saw that I really was easy to use, worked well and fit exactly with the way that my wife and I like to think about our finances, I had to take the plunge. I hope this helps. I would recommend any one of these programs. They all have their strengths. Thank you for your time.