Handling a Credit Card Credit and Negative Envelope

1

This could get a bit convoluted, so buckle in. Highlights:

  • Overspent vacation budget by $500, so the envelope shows -$500 (plenty of money in checking to cove this).
  • Used CapOne card for all vacation expenditures
  • Have an AmEx cash rewards card with enough points to redeem for $500 statement credit
  • Not cash-back to account, but credit to offset up to $500 of charges to card, which translates to $500 in my checking account that I don’t have to pay AmEx
  • Entered the AmEx credit in GB and credited the $500 to the Vacation envelope
  • AmEx card now shows +$500 and Vacation is $0
  • Problem solved? Nope

Problem is now as I use the AmEx, I need to record those transactions in GB to apply towards the credit. If I use the card for gas or groceries (or whatever), those envelopes will have money deducted from them that really isn’t being spent. I have thought through different ways to handle this credit and any option either only handles the $500 credit or the envelope issue, not both.

Option 1: Undo the $500 credit to Vacation. Do a transfer of $500 from one envelope to Vacation (I have envelopes with more than $500 that I don’t need for a while). That brings the Vacation envelope to $0. Then do the $500 credit to the other envelope to make up for the $500 transfer. The problem still seems that as I am entering expenditures, it’s still being deducted from that envelope.

Option 2: Move the money from savings to checking and from a savings envelope to Vacation. Put the credit on another envelope (or maybe create an envelope called “AmEx Credit”) and after I spend the credit, I move $500 that I don’t have to pay AmEx back into my savings account. That way no other envelope is affected.

This last option does seem to make sense in my mind, but I might be missing something. Does this work? Is there a better way to handle this?

Finally, yes, I realize this would have been much easier if we had done this proactively, creating a $500 credit in our Vacation envelope and then just spent it down. We have done that on previous vacations, but just didn’t think we needed to this time.

2

Why do you think you have an issue? I get what your saying…from a cash flow perspective you are buying groceries but you wont have a cash outlay because of the Amex credit. But I dont think that aspect matters.
If you stick to your original approach and play it forward, what issue do you think you will end up with? An incorrect account balance? An incorrect total of envelope balance? The actual cash flow doesnt matter, just the total.
Maybe I’m miss interpreting something you are saying but not sure I see an issue.

3

Thanks for your post! I see why this is confusing, but I think your point here “those envelopes will have money deducted from them that really isn’t being spent” isn’t technically correct. That 500 in rewards reduced the amount you owe on your credit card, but the subsequent spending still needs to be accounted for. Otherwise, you’ll have a mismatch between your Envelopes and Accounts.

I’d recommend just recording your spending as your normally. So even if you buy groceries with your Amex, you’ll record that in Goodbudget against your Groceries Envelope and you Amex Account.

4

How I handle reward points from a credit card is by creating it’s own envelope. In this case, AmEx Rewards envelope would have $500 in it. I wouldn’t have allocated that $500 to vacation since it was paid with your CapOne card, but I would allocate any AmEx charges that you plan on using that $500 credit for. There’s always several or more ways to use GB, but this is how I currently use my rewards points credit cards.

5

I agree with Karisa from Goodbudget on this one.

Another way to think about it is a credit in your credit card account is the exact same thing as cash in your checking account.

The principle of the envelope method is simply the cash available to spend spread across envelopes. Therefore, that credit on your credit card is cash on hand to spend in your envelopes.

6

I have a unique way that is kind of rewarding. I also use the Capital One card, and they offer the travel eraser. When I get a credit on the CC card, I just move transactions into a clearing account that I set up, add any transactions you paid with the CC to lower the amount you owe. This is handy if you have already paid and get credits months later.

7

I’m behind answering, but I do appreciate the responses and efforts to help.

You are correct from an actual balance sheet issue, it really doesn’t matter. However, I just don’t like the big -$500 showing up in my envelopes.

8

Thanks Karisa. Does what your suggesting deal with the -$500 in my Vacation envelope? I understand if I take the credit and apply it to another category and then spend it, then all I’ve done is used the credit with no real money spent. But then how do I get rid of the -$500 in Vacation without a transfer of funds of some kind?

9

Thanks. I mentioned in my post that we’ve handled this a bit more proactively in the past, similar to this, but again, my issue is dealing with the situation of a current envelope deficit. Good reminder to be more thoughtful going into vacations.

10

What do you mean by big -$500 swing showing up in your envelopes?
If I understand your post (I may not):

  1. you over spent on the vacation envelope by $500, leaving that envelope at -$500
  2. you then took a credit you had from Amex and applied that to vacation envelope.
  3. You used your Amex to pay for groceries. Those transactions should hit your groceries envelope.
  4. I assume you have funds in your groceries envelope to go towards those purchases.
  5. If on the other hand, you dont have funds in your grocery envelope then you technically don’t have the money for groceries.

If you are thinking you don’t need available cash for groceries because the Amex card has a credit, that’s not true.

Hope that makes sense. Apologize if this isn’t what you were communicating.

11

Thanks for the response.

  1. Correct
  2. Correct
  3. Haven’t spent any of the credit yet, but that would be the plan
  4. Correct
    So my question still seems open, even with the other answers given.
    If I apply the $500 to the -$500 and bring that envelope to $0, I will still have a $500 credit in AmEx, which means I can spend $500 on the AmEx before I pay anything to AmEx, which means I will have $500 actual dollars in my account beyond what I spent. I want to figure out how to make sure I am accounting for it appropriately.
12

I really do appreciate those who have replied and who have tried to help. I also admit that I could be overthinking the situation, so I want to try to simplify my question again with a bit of an epiphany that I had. Maybe I’m approaching it incorrectly and there is no real way to reconcile this. If I redeem and spend the $500 AmEx credit, it ends up being just a net-zero in my account. I have $500 to spend with AmEx, but that doesn’t necessarily translate into cash in my account. Perhaps the best thing is to just move the $500 I need to bring my Vacation envelope up to $0 from another envelope. That way the money in my account stays the same, it’s just an envelope transfer. Or I could just move it from savings and my Emerg Sav envelope and that would offset the spending and the money.
Again, thanks for your help.

13

Personally that’s what I would do because you used your CapOne cc for the vacation charges. Now you have $500 credit on your AmEx cc that you can use for future AmEx purchases.

14

The AmEx credit really functions as unexpected income here. To keep things painfully accurate, you could enter income to the AmEx account that offsets your purchase each time you use the credit. You’d then allocate that income to the Vacation envelope until it’s back to zero, or cover the vacation envelope now from Unassigned and then reimburse Unassigned with the AmEx “income”.