[moneydance] Envelope Budgeting/Category Balances...

[Robert Kuropkat]

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Brett Russ wrote:
> *This message was transferred with a trial version of CommuniGate(tm) Pro*
> On Thu, Apr 10, 2008 at 9:43 AM, Chuck <chuckf410 at yahoo.com> wrote:
>> You may not /need/ reports, but they are helpful in creating the budget for next month. With the reports you can compare the original budget that you did going into April to what you actually used during the month and use that info to forecast to some degree your budget for May.
>>
>>  This is why I use a separate spreadsheet for my envelope tracking. I'd love to do it within MD but there is no easy way that I have found without sacrificing some other aspect of MD.
>>
> 
> Couple things:
> 
> -what is the advantage of envelope over MD's budget if, by clicking on
> the budget graph on the home page, I can instantly see what categories
> are over/under budget?  Isn't the end result the same--as soon as I
> enter an expense, it will be instantly reflected in either the
> envelope sub-accounts OR the budget tracker?  I guess I don't see how
> envelope let's you plan ahead any better than the budget does, and
> besides that MD wasn't designed for it and doing it seems to tweak the
> brain.  BTW, I haven't tried MD 2008 yet, but my understanding is that
> budgeting now allows for tracking sub-category expenses in the parent
> budget line item.
> 
> -Chuck, it'd be super if you could strip the personal info out of that
> spreadsheet and pass it along as a template for others to use.
> Probably not at the top of your list I'm sure, but I would like to
> experiment a bit with the env. method.
> 
> "Sell me on envelope" :-)
> thanks,
> BR

Brett,

I saw you got several other descriptions on the mechanics of the
Envelope method.  I am still new to it so can't give you good success
stories, what I can tell you is what drove me to explore it.

For me the fundamental breakdown of what I call "Quicken Style" budgets
is that they seem to be basically useless for predictive or proactive
efforts.  In my case, I wanted to increase my savings.  I was not
looking to reduce spending in any categories per se, what I wanted to
know was how much would be left over at the end of the month so I could
increase my savings account.  I struggled for years with this giving it
concerted efforts every few months thinking I was just doing it wrong.
But, possibly for some of the reasons mentioned in other posts, none of
the reports agreed and more importantly I never had the predicted amount
of money left over.

Thinking the problem was me screwing up, I searched in vain for answers.
 I finally came across a post in a Quicken forum from an accountant who
explained why this style budgeting was fundamentally flawed.  I'll admit
I didn't fully understand it, only that it validated my results.  As
Yahoo Serious said in his part in the movie Young Einstein while
learning double entry accounting,  "...right left out right..."

One of the primary examples this post showed was with credit card
purchases and how this effectively borked up your reports.  The problem
being you charge it this month, so it comes out of your appropriate
expense category this month but you don't actually pay for until NEXT
month.  A trick in envelope style budgeting accounts for this.

So the short form of the story is, if you know you want to reduce
spending in some small set of categories, but don't really care about
the end result on your finances over all, budget reports do just fine.
You **know** you have more money left over, but don't really care how
much or how you are going to apply it to other efforts.

If however, you are trying for an over all or holistic approach to your
finances (I reduce here, so I can increase there and the net result is
thus) then you need a more sophisticated technique.  As far as I can
tell, Envelope Budgeting is no more than a simplified and friendly faced
form of exactly what any business has to do for it's accounting.

As to a lot of the other arguments (reports are after the fact,
envelopes are proactive) this is mainly a mental trick.  Taking 4 left
turns vs. taking 4 right turns.  The important part, which was mentioned
in other posts, is in how the money is tracked, your ability "save" for
an event and the ability "move" money from one category to another as
opposed to just accepting a report that says you were over in one and
under in the other.

Hope that helps...

Robert Kuropkat


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