I understand how credit card payments work, both for those I pay off each month and those I don’t. But I am not wrapping my head around is how credit cards relate to envelopes in terms of specific envelopes for monthly expenses that are paid by credit cards and the envelope designated for the monthly payment to the credit card itself.
Let’s say I paid for a streaming service every month on credit card A. The streaming service costs $10, which means that I will also be paying the credit card $10. So if I bill the streaming service envelope from my checking account with $10, and then I put $10 from my checking account into the credit card envelope to pay it off, aren’t I spending $20 Each month from my checking account? It seems like I should not have an envelope for the credit card payment, since I’m already allocating those funds to streaming service. Is that correct?
If you’re carrying a balance AND using your card it gets a little hinky—the credit card function is more for paying down debt, so anything you put on the card won’t go into the “regular” envelopes.
There are a couple of workarounds for this but essentially yes, you can’t assign credit card spend to a budget envelope if you’re carrying a balance. Entering it as a debt transaction will keep your accounts straight, but not your budget reports. Entering it as an envelope transaction will give you clean budget reports but won’t work with your debt envelope.
I split my card into two “accounts”—one for the monthly charges I paid in full and one for the promo balance I was paying off. Reconciling was a nightmare but my envelopes were clean.
You could also move money out of “regular” envelopes into debt envelopes to make up for expenses—so do a transfer instead of an expense. Lots of options but they all take a little work. Hope this makes sense!
I have credit cards that I pay off every month and others that I might carry a balance short term, all without using debt accounts. It works perfect for me and how I use GB. First, credit cards I pay off monthly, when I charge my card I enter a transaction setting the envelope/envelopes those funds will be used for and set the account to my card account. I do this same thing for transaction I make on my card throughout the month. When I receive my credit card statement I enter an account transfer transaction from my checking account to my credit card account for the full balance. Account transfers do not affect your envelopes.
For an example of the above, let’s say I have a clothing envelope, grocery envelope, gasoline envelope. Day 1 at Store A I spend $75 on clothes and $125 on groceries for a total charge of $200 on credit card X that I pay in full every month. When I enter this transaction into GB, the amount is $200 and it will be a split transaction; $75 pulled from clothing envelope and $125 to grocery envelope. Day 2 I use my credit card X for $50 of gas. I enter this charge into GB with $50 pulled from my gasoline envelope and charged to card X. Card X now has a balance of $250. I receive my monthly statement for card X with a balance of $250. I go onto my actual credit card website and pay off this card by transferring $250 from my checking account to my credit card X bank. Then I use GB to reflect this transfer by creating a GB account transfer of $250 from checking account to credit card X account. Remember, account transfers in GB do not affect envelopes.
Now, let’s take an example of carrying a balance on a credit card. I have an auto repair envelope and credit card Y. I never keep a balance on a credit card indefinitely (you’ll see why in a minute), so let’s say this card balance is $0. My vehicle needs a $2000 repair. I pay this charge on card Y. In GB I add a transaction of $2000 with auto repair envelope and card Y account. I receive my card Y monthly statement with $2000 balance. I decide to pay $500 on this card. I show this in GB by entering an account transfer, same as I did in the previous example. Now, my card Y balance is $1500. I receive my next month’s statement, and the balance is $1650 because of the $150 interest charge. I enter a new transaction of $150, envelope is auto repair, account is card Y. Now, I realized I just threw away $150 of my hard earned money, so I better stop eating out and start eating more mac n cheese and pay $700 this month on card Y. Now my balance is $950. Repeat this process until it’s paid off.
As Tiffany said, some reports may not be accurate. However, like I said above, the way I use GB and the reports I pull, this works perfectly for me and tracks everything I need.
@wrbird mentioned this below, but just to reiterate, when you have a credit card that you pay off each month, you’ll only need to track the associated spending in your Envelopes. That means you won’t need a separate Envelope for the CC’s monthly payment. Instead, when it comes time record your CC payment in Goodbudget, you’ll record an Account Transfer. I hope that helps!
I keep thinking about this issue because a lot of us have brought it up and found workarounds.
I think the way we’re “expected” to think of a debt envelope is for money that we need to spend (to pay off existing debts) but for which transactions won’t appear in the monthly ledger.
For example, if I have a bank balance of $1000 and a credit card for which I have to pay $100/month ongoing, I’ll need to account for that money in my budget. $100 toward the existing card debt leaves me just $900 to fill my “regular” envelopes, even though I didn’t “spend” that $100 this month. From that $900 would come your streaming service, groceries, etc. regardless of whether you pay cash or use a card for them.
Where Goodbudget makes this dicey is that you can’t enter a transaction from an envelope and charge it to a card with a balance. If that were an option, none of this would be an issue. I don’t think it’s something they’re actively working on, but I wish it were!
Yeah, this one of the two things about GB that caused me to consider going elsewhere - the other one being that there’s another program that lets you plan your income against expenses much more easily than in GB - I totally understand that GB doesn’t want charged transactions on debt accounts to affect envelope amounts, yet they do for credit cards being paid off each month. Yet on the other hand, if you have to spend more on a CC that you can’t pay off - say your car breaks down - you can’t use the same transaction types that you have for debt accounts. I feel that all CCs should be “debt” accounts, whether you pay them off or not and allow us to imput the transaction information just like for any other account, but then they could add a check box to exclude the transaction from enveloping tracking. Does that make sense?