Josh Young

I know this sort of diverges from my normal posts, but I was getting some questions on my post reviewing PearBudget and Wesabe, and one of my responses started to get pretty long, so I figured I’d just write a post about it instead of a comment. Here you go.

This is mostly in response to a comment by Dave M on my post entitled PearBudget and Wesabe.com:

Hi Josh – AWESOME post!

I absolutely love finding and reviewing new personal finance tools, and I’ve already bookmarked these two. I’ve been using Mvelopes on a free 1-year service account I won. It’s very cool and helped us a lot but, like you, I can’t justify paying a high monthly fee to manage my money. That reminds me… I have to cancel by the end of this month or it will auto renew! :-)

Anyway, I’m really curious to know if you’ve ever evaluated YNAB (You Need a Budget). If so, what did you think about it and how did it compare to the tools you mentioned here? I really like the envelope style of budgeting, and I’m just not sure yet if I can do that with PearBudget or Wesabe.

Thanks!

We’ve actually slightly changed how we do things since I wrote the original post. I’ve gotten most of this information off of several websites and methods, but to be honest, I don’t really remember specifically where I read about most of them. What we are doing is just sort of a combination of several concepts I’ve read on different PF blogs over the past month or two. A lot of our strategy is from Dave Ramsey (on how we spend, that is), but we still do use a credit card to put our gas on (so that we don’t have to go inside to pay for our gas), and we pay it off each month with that budgeted amount.

First, to answer the question about YNAB in Dave M’s comment, I’ve never used it before, so I don’t really have any thoughts on it.

On the other stuff, I’m totally with Dave M – I have really grown to love the envelope style of budgeting. We’ve kind of gone away from tracking all of our purchases as diligently as we were before (i.e., entering all of our receipts into PearBudget). It just doesn’t fit our lifestyle that well right now. I still upload our transactions to Wesabe every week or two just to get a good picture of some things, but for almost everything else, we’re using cash out of physical envelopes to track things each month. While we’re not tracking exactly what we spend where, the money we spend comes right out of the envelopes, so it’s easy to see how much we’ve spent and how much we have left for the month. As for exactly where we spent it, it becomes less important once you have a good way to keep tabs on the amounts in each area.

Basically, what we did was break up our budget into three categories: automated, accumulated, and cash. Here’s a brief description of each category:

Automated: These are amounts that are pretty much set every month (or at least close), some of which are automatically deducted. These are things like savings, tithing, giving, mortgage, electric, heat, water, phone, cable, internet, gas, etc. Some of these aren’t necessarily set (i.e., electric), but we slightly overestimate the average cost so that most months we’ll spend slightly less than that, and if we have a month that is higher than the estimate, there will be a buffer accumulated in that account to take care of it. If the buffer gets “too big,” then we can move part of it to our savings instead of keeping it here.

Accumulated: These are amounts that are irregular and may or may not come up each month. Things like car upkeep/repair, some home items, etc fall here. We put a set amount in this account each month, and it may or may not be touched in that month. But the money is there and building for when we need it for these certain items. This is actually a relatively small amount each month, but it is there and growing each month. We keep this in a separate savings account.

Cash: These are the things that we know we’re going to spend each month that could have a tendency to go “out of control” (i.e., over budget). Things like dining out, entertainment, personal money, and groceries go in this category. At the beginning of each month, we take out the total amount budgeted for the cash category and then put each subcategory (groceries, dining out, etc.) into its own envelope. That’s how much we can spend for that month. If we need extra in any one of them during the month, then we can move money from another envelope and spend less in that other subcategory (this describes the basis of the envelope method). There’s no guessing on how much we have left for the month or anything like that. If there’s money left over at the end of the month, we can either carry it over so that we have a little more next month (if needed) or deposit it in our savings.

And that’s pretty much it. The key is knowing which of your areas have a tendency to go “out of control” or over budget if you’re not careful. For us, they are dining out, entertainment, personal, and groceries. Those are the things that you want to put in the Cash category. That way there’s no danger of overspending.

As for how PearBudget and Wesabe fall into this plan, I haven’t found a really good way to tie PearBudget into it, but we still use Wesabe to track all of those expenses that aren’t in the Cash category. Honestly, by just looking at each upcoming month and what we’ll be spending, there’s not really much need for us to track exactly what we spend where. For us, using Wesabe is more like tracking how much our bills were and what other irregular things came up.

This is a little off-subject, but we’re currently working on getting completely out of debt, including cars, and eventually including the house (although that will take a little longer, obviously). Some people think we’re crazy because “you’ll always have a car payment,” but personally, I think they’re the ones who are nuts. Seems pointless to me to have that kind of debt — and it’s completely possible to eliminate it on any income. Anyway, that’s neither here nor there. If you want to know more about that kind of stuff, start reading a listening to Dave Ramsey. It really works.

PearBudget

Wesabe

Dave Ramsey

Josh Young Finance, Personal