To start, I budget on a monthly cycle. Even though I’m paid biweekly, all the significant expenses (e.g. mortgage) are monthly. I have Monthly, Quarterly, Annual, and Goal envelopes set up for various purposes. I have accounts for all the places I keep money, plus an additional account named “Projected Income”. I also do zero-based budgeting so the goal is to have zero Unallocated amount at the start of each month.
About a week before the end of a month I start to set up the budget for the next month. I have an Excel spreadsheet which I have built and customized over several years to my specific way of doing it, but basically it works the way Dave Ramsey says. Start with your projected income at the top, then list the “four walls” (shelter, food, utilities, transportation), then continue down your priorities allocating funds until the balance is zero. This gives me a week or so to make adjustments as I remember things or new things pop up. Doing it in Excel tables allows me to project my next month’s envelopes while the current month’s envelopes are burning down in GoodBudget.
On the first day of the month I basically do two separate Fills. First I do a “Fill from Unallocated” named “Month End”. In this Fill I set all my monthly envelope balances to zero. If there was anything left in an envelope, that amount gets added to Unallocated. If I had overspent that envelope, it draws from Unallocated. After all the envelopes are reset any remaining surplus (or deficit) in Unallocated gets added to (or subtracted from) a goal envelope named “Slush”. The goal of this exercise is to “reset” GB to a clean slate for the next month. At this point I make any adjustments to the envelopes per the Excel spreadsheet. Add new goals, increase grocery envelope if I’m regularly overspending, decrease others I’m regularly underspending, etc.
Now is where the “magic” happens. I do a “Fill from New Income” into my Projected Income account using the total for the whole month from the Excel spreadsheet and just “Add Budgeted Amount” down the list and any amounts to the Goal envelopes per the spreadsheet. Boom, full envelopes, all money accounted for, ready to watch the envelopes burn down over the next few weeks.
A couple things to note…
- When you actually receive income that you had previously projected, you do an Account Transfer of the income amount from Projected Income to Checking/Savings/Cash account. Do not add it as new income or you will be double-counting.
- If you receive income that you had not projected (e.g. gift, bonus, rebate), treat it as a regular income in GB and allocate the funds wherever you want. Personally I leave these Unallocated until the “Month End” fill described above.
- After your last payday for the month, if Projected Income still has a non-zero balance you will have to resolve that. If the balance is negative then you received more income than projected, simply edit the balance to zero or enter an extra Income transaction to bring it up to zero and allocate those funds wherever you want. If the balance is positive then you received less income than projected, you will have to edit it to zero or enter an extra Expense transaction to draw it down to zero and pull those funds from some envelope (i.e. “Slush”). Personally I just edit the balance to zero and leave the difference Unallocated until I do the “Month End” fill described above.
I have been a GB user for many years now and this system didn’t coalesce into this current form until several months ago. One of the biggest problems I have with GB is trying to fill monthly envelopes a little at a time as pay comes in, especially for envelopes that are being spent down as you go. It’s frustrating to come to payday, see a $300 balance in Groceries envelope, and have to go back and figure out how much I’ve already added to it because I’ve also spent a lot of it, in order to know how much I still have left to add to it this month. Or coming to the last week of the month and seeing $50 in Groceries… is that because I’ve already spent most of my budget or is it because I still have to add $150 when I get paid in a few days??? Early on I realized that I needed to fill all the regular expense envelopes to full at the start of the month, but I did not have enough funds at the time to fill everything at once. By filling everything up front using projected income I always know how much is left and how much has been spent no matter where I am in relation to payday(s). The problem is GB does not directly support this the way Ramsey’s app does, so for the longest time I would simply treat Unallocated as my projected income source. I would fill all my envelopes from Unallocated which would become a big negative number which showed how much I needed to still earn for the month. Each payday would bring that number closer to zero. This has the same intended effect, but once I learned more about how Accounting works, it was simple to add the Projected Income account and keep everything else the same and now I don’t have to see that big red negative number anymore.
That said, if you follow the GB and YNAB methods and age your money to the point where your Unallocated balance is big enough, you can simply fill all your envelopes at the start of the month and replenish Unallocated during the month without having to jump through any of these extra hoops. I may shift towards that method someday, but until you get to the point where you have several months in reserve I think the Ramsey method is better.