What's Envelope Budgeting?

Someone was asking me recently what I thought of mint.com, and I said that I wished it supported envelope budgeting. "What's envelope budgeting?", she asked. I've mentioned it here on a few occasions -- here's what I wrote to her:

In a nutshell, envelope budgeting means that you have cash on hand before spending money. In the old days you would cash your paycheck into actual cash, and then divvy up the cash into envelopes marked "rent" or "gas" or "clothes" or what have you. When it came time to buy something or pay a bill, you could only spend the money that you had in that envelope. There's nothing keeping you from moving money from one envelope to another, but the assumption is that you're wise and you're not going to take all of the money out of "rent" to go buy stuff.

Obviously we don't use cash and envelopes anymore, but the theory is still there. A financial management system that supports envelope budgeting wouldn't show you what your checking account balance is as much as how much money you've got in your set of virtual envelopes.

This is different than what Quicken or mint.com or a bunch of other financial management tools do. Sure, Quicken lets you categorize your expenses, but it's more forensic accounting ("where did my money go?") than a planning/saving tool. The power of envelope budgeting is that you're giving each dollar a name and a purpose, putting you in control of your money. Envelope budgeting is also much better than traditional budgets for more occasional expenses (property taxes, car repairs). I know I've got to pay property taxes in October, and I'm putting a little money in that envelope now with each paycheck, so that when that big bill comes along, I'm all set. It also works very well for those with irregular incomes -- you can prioritize your expenses, funding the most important envelopes first.

There are a variety of online services and dedicated programs that support the envelope method. I tried out mvelopes.com a while back, but it's expensive and they want to know your banking login information, which I'm a little creeped out about.

I'm taking a look at neobudget.com now -- look for a post in the next week or so.

Quicken slips again!

It's been a while since I've checked in... Decided I'd stop by Intuit's site and see if there's any news about our favorite vaporware, and there's this note on their site (posted 7/13/09):

We anticipate releasing our next version of Quicken for Mac (formerly Quicken Financial Life for Mac) in February 2010.

This same page says that pre-orders will start in October 2009.

Let's review the history here:

• The latest version of Quicken for the Mac is Quicken 2007. Like car model years and Madden football, the '2007' in the title means that it was released in late 2006.
• January 2008: at MacWorld Expo, Intuit announces the next version of Quicken, titled "Quicken Financial Life for Mac".
• The public beta started in September 2008, and at the time they anticipated a ship date of "this winter" (meaning, presumably, sometime between December 2008 and March 2009).
• We got our hands on the beta around December 2008 (after Intuit had initially said that public response to the beta was "overwhelming"). In December 2008 they announced that QFLM would be released in Summer 2009.
• Now here we are in the dog days of summer '09, and the word from Intuit is that the product (no longer called QFLM) will ship in March 2010.

Assuming that the March 2010 deadline sticks (and there's really no reason to believe this, but let's pretend), this will mean that almost four years will have passed between versions of Quicken for the Mac.

The folks at Intuit have a blog posting discussing this latest slip/ship date; the comments on it are fairly scathing.

Truth be told, I'm not surprised that the date has slipped once again. I didn't post anything about the QFLM beta we got our hands on because there was so little to talk about -- huge gigantic features were just not there (but, boy, was there cover flow!). Calling it beta was generous at best.

Game Over - the Ultimate Suckage

I've been getting OL-249 messages from my bank in Quicken 2006 for about the last week. I called the bank's technical support, and they say that Quicken had end-of-lifed Quicken 2006 for Mac.

Normally, that might be OK (where "OK" includes having a gun jabbed in your ribs like in a Bogart movie), but the current situation is double-extra screwed. Quicken Financial Life for Mac is still in beta, and the last I looked it was lacking several features that are show-stoppers for me (e.g., reporting and budgeting). Quicken for Mac 2007 is a dead man walking - it will be EOLed as soon as QFLM comes out.

So, I can't use my existing Quicken. The new Quicken is still not ready for prime-time. Therefore, my bank is effectively inaccessible from Quicken.

Update: as pointed out by a reader, there is a fix from Quicken - https://quicken.custhelp.com/cgi-bin/quicken.cfg/php/enduser/std_adp.php?p_faqid=7368. It's a little weird, but it works.

Moneywell impressions, part 2 - square pegs and round holes

Continuing with my posts on Moneywell...

One of the complications I have with my envelope system is based on the fact that I get bi-weekly paychecks.  (There was an effort a few years ago to move to paychecks on the 1st and 15th of every month, but the union membership shot it down. It seems obvious to me that nobody in the union budgeted their money -- twice-monthly paychecks work sooooo much better).

This bi-weekly paycheck thing complicates my budgeting. Moneywell has a very nifty little spending plan setup to help automate the allocation of salary into buckets, but it doesn't work well for us bi-weekly check folks working in a monthly billing universe.  A small example will demonstrate this:

Let's say you've got a bill that runs $100/month.  Over a year, you're spending $1200.  Us bi-weekly payday folks get 26 paychecks a year.  In theory, I should be setting aside $1200/26 = $46.15 per paycheck to pay this bill. (That is, in fact, what Moneywell will say).

But here's where theory comes crashing into reality.  Let's say I get paid on January 6th and 20th, and the bill's due on January 27th. If I put away my $46.15 after Jan 6 and 20, I only have $92.30 set aside for my $100 bill -- I'm $7.70 short when the bill comes due.  Sure, it'll all work out eventually, but here in the short term I'm hosed.

Moneywell impressions, part 1 - buckets are not categories

As I mentioned a few weeks ago, I gave Moneywell a whirl.  Overall, I don't think Moneywell is going to work well for me, but your mileage may vary.

Moneywell supports the envelope theory of budget management. In Moneywell, every time you get some cash in, it turns into an inflow, which you can then allocate to different areas. Traditional envelope theory has you cashing your paycheck and getting paper envelopes; Moneywell uses the idea of buckets.

I guess my big problem with Moneywell's bucket implementation is the difference between buckets and categories.  Take, for example, my insurance bill. I've got life, auto, and home insurance with the same company.  The bill is monthly and fairly regular (maybe adjusting once every six months as a new auto premium is calculated), and there's just one bill that combines all three. From a bucket-budget planning standpoint, I just want to have one bucket -- "insurance" -- that money moves into and comes out from.

But, every once in a while, I want to be able to look back and get more granularity.  If I was shopping around for a different auto insurer, I might want to look back and see how much I had been spending on auto insurance. 

There's the rub with Moneywell -- if you want granularity, you need more buckets -- one per grain, so to speak.  But...the more buckets you've got, the more complicated every payday gets, and most of the time, you don't need that much detail.

iBudget?

Any real alternative to Quicken has to support individual budgets for individual months. For example, my power bill ebbs and flows with the season. Likewise the water bill - no need to water during winter in the Pacific Northwest. Property taxes are due once a year - sure, I save up all year long, but I only pay it out in November. In the words of Dave Ramsey, we're not working with "the perfect budget from heaven," but rather where is this month's money really going?

So far, the programs that I've looked at both start with 'i' - iBank (downloaded) and iCash (just looked at manual). And, both of them assume monthly budget amounts - i.e., the same for all months of the year. That makes them both non-starters. Boo!

And I found a blog post that says the iBank has very limited online data downloading. Again, boo.

iBank has a cool domain name

Google just served up an ad for iBank using this domain name - www.thequickenkiller.com. Cool.

I too am looking to evaluate an alternative to Quicken. Totally unrelated to this domain name, however, I think while Tom's checking out MoneyWell, I'll check out iBank. More news when it happens...