Our Budget System

Tenets

Over years of practice, we've settled on a unique modification to the classic envelope budget system that is sustainable and actually helps us modify our spending behavior, not just feel bad about it after the fact. Some of the key attributes of our system are:

Weekly. Many budget systems operate on a monthly timeframe. We've found this is just too long and doesn't match the rhythm of life. Some spending is monthly, like bills and housing, but most of the variable discretionary spending that we have control over is better to monitor on a week to week basis.

Future centric. Most budget and money apps focus on past spending, and while we have good historical spending data, our envelopes are primarily forward looking. Having visibility to upcoming problems is critical to modifying spending behavior before you get into trouble. We keep 120 days of future envelopes forecasted at all times so you can plan out the next couple months.

Flexible. You'll set up a fixed budget consisting of weekly and monthly expenses which are then populated into the weekly envelopes grid, but the reality of any very detailed plan is that life will happen. When it does the important part is reacting properly: offsetting unplanned expenses with caution elsewhere in your budget.

The Budget

The first step to setting up the system is to create envelopes for everything you spend money on. The classic budget requirements apply here: your budget should have a slight surplus (we recommend less than 1%), and it should have some slack in it - a Miscellaneous envelope, and a couple envelopes like "Car Maintenance" or "Home Maintenance" for those expected unexpected expenses.

Envelopes can be set up as Weekly for most regular expenses like Groceries, Gas, and Clothes, or as Monthly for bills like Rent / Mortgage, Cell Phone, and Electric. A core part of your budget should be savings for annual expenses like Christmas, Birthdays, Spring Landscaping, or Vacation, which should be set up as Weekly expenses. Saving for these planned annual expenses every week takes the drama out of your financial planning and makes you feel in control instead of out of control when they inevitably come around.

At first you will naturally start with a smaller number of envelopes, but as you see yourself spending money out of a Miscellaneous envelope, if it's not a one-time expense you should consider setting up an envelope. For our family of 5 we have nearly 80 envelopes, and we've gotten our Miscellaneous envelope down to 6% of our budget. The feeling of "there's an envelope for that" is where the system really pays off. After years of adding small savings for minor expenses, we rarely have an expense that we don't have something set aside for.

The Envelope Grid

The main page you'll visit every time you review money (after updating Transactions) is Envelopes. This grid has each envelope down the left side, and each week across the top.

This week's buffer is your total cash in all accounts (credit card balances count as negative), minus the total balance of all envelopes. Future week buffers are the prior week buffer, plus any planned income in that period, minus any planned envelope contributions. Each week's buffer is the planned "slack" you have in the budget that week, and we call the lowest future buffer amount Available to Allocate. If you scroll out to the right you should be able to find a week where the buffer matches your Available to Allocate amount.

No negative envelopes, zero Available to Allocate. These are your two goals each time you update Savvy. We recommend maintaining your Available to Allocate balance at zero because it helps you see when things happen that need to be adjusted into your budget. Negative envelopes represent overspending that needs to be offset elsewhere. By moving money around you are mentally earmarking how you're going to bridge that gap. Throughout the week, Savvy should help you make little decisions based on where you stand on your envelopes - eating at home after an unplanned dinner with friends earlier in the week, or treating yourself if you're ahead for the week.

Here are several common scenarios, how they will impact your Envelopes, and how you should react:

Unplanned higher income will increase your Available to Allocate. This can then be transferred into any envelopes you'd like to bring your Available to Allocate back down to zero.

Unplanned lower income will decrease your Available to Allocate. You should transfer money from one or more envelopes into Unallocated to 'fill the hole' and bring your Available to Allocate back up to zero.

Overspending in an envelope will make that envelope balance negative but will not impact Available to Allocate. You should transfer money from one or more envelopes into the overspent envelope to 'fill the hole'. Once you have a large total envelope balance you can let negative envelopes ride for a week or two and let their weekly budgets catch up.

Underspending in an envelope will leave that envelope balance positive but will not impact Available to Allocate. If you're piling up too much money in an envelope, you can eventually move it to another envelope as needed.