The purpose of a budget is to answer simple questions: how much money did I save last month? Do I have enough money to make this purchase? Answering these is simple in an ideal world, but the complexity of real life sometimes makes it hard to see clearly.
There are many approaches to budgeting. Some of the approaches that seem simple at first end up causing more work to keep an accurate budget, or make it easy for hidden expenses to drain your savings.
We find the best way to track your money is rooted in something called envelope budgeting. Instead of predicting how much you'll make and spend and trying to reconcile that with what actually happened, envelope budgeting embraces real income as the source of your budget instead. This means you can only budget money that you already have.
You can think of categories as little funds that you deposit money into. Combined with our rollover system, it provides an intuitive way to handle a lot of things that come up in life. And you know it's always accurately depicting your finances — there's no made up numbers.
Like the tactile feedback of a vibration under your finger, this system tells you when things are right or wrong and provides easy ways to fix it.
If you are creating a budget for the first time, here's how that works:
Here's the important part: your budget is not static. It's not something you set and forget. Maybe you check in and realize your food budget is busted because you hosted a dinner party. No problem — just move money from somewhere else to cover it.
Maybe when the next month starts, you see that your budget didn't really work. Make a new budget based off what you learned!
At a high-level, using the budget looks like this:
When you add income for a month, it becomes immediately available to budget. You will see it in the Available Funds number at the top of the month. If you don't budget it for this month, it will roll over to the next month and appear in the same Available Funds number for that month. You can hover over that number and a popup will show which income came from previous months and the current month.
Most likely, a common workflow will be to "hold" income you make this month for next month's budget. Optionally, to hold money instead of budgeting it for a month:
This doesn't do anything except takes out money from the To Budget amount for that month, allowing you to "zero it out" and mark it to be used for later. That money will appear in next month's To Budget. You can also just leave the To Budget amount alone.
When you overspend in a category, that needs to rollover as well. You spent money that wasn't budgeted, so now you need to go back and take it out from somewhere. Doing this keeps your budget in tact.
One way to do this would be to simply roll it over into next month's budget for that category, subtracting it from the available amount. This hardly ever works in real life — if you have a food budget it's highly unlikely you'll be able go under it next month just because you overspent.
Usually you have a couple places that you draw money from to cover overspending. To make it easy, all overspending is automatically taken out of next month's To budget amount, and category balances are reset to zero. This makes it easy to make up for it by reducing your budget in some other category (like savings).
If there is money leftover in a category at the end of a month, it simply rolls over into the category's balance next month.
You can move money between categories, as well as between the To budget amount and categories.
You can also click the To budget amount and transfer to a category.
You need to create a new budget each time a new month begins. It wouldn't make sense for categories to be budgeted for that month already since cash needs to come from somewhere. Hopefully, by the time a new month rolls around you've got enough income from last month to create another budget month:
Sometimes you want to keep a negative balance in a category across months. The most common reason is to keep track of reimbursable expenses.
This might sound complex, but it's really not! You can get as detailed as you want, but it's still very effective if you keep it simple. If you're not sure where to start, we recommend this simple workflow:
If you don't have a savings account, you can simply skip step 6. The Savings category will build up a balance and represent the savings that you are keeping in your account.
This also assumes you have enough income to cover a full month plus any overspending. If you don't, you need to watch your budget more carefully and make sure to cover overspending from other categories.