The prevailing wisdom is that people spend more when they have a debit or credit card in their hand. Every swipe feels like free money until you get your monthly statement.
Enter the envelope system. You put just enough cash in designated envelopes and when the money’s gone, it’s gone — the idea being that making your spending tangible will produce better financial habits.
Goodbudget, formerly known as Easy Envelope Budget Aid, has taken this old-school, pen-and-paper system and made it digital. You allocate money to certain envelopes each month, whether it be gas, utilities, or your mortgage. You can also account for annual or irregular expenses like a family vacation or re-registering your car. Add your monthly income and enter each time you spend money into the app and the amount will be subtracted from that respective envelope’s total.
Goodbudget’s overarching ethos is that it helps people spend money in a way that aligns with their values. It also makes budgeting pretty straightforward — albeit with some monthly legwork that may turn off anyone who isn’t fully committed.
What I Liked
I’ve never been a devotee of the cash-envelope system. (Something about carrying envelopes around with large amounts of money in them just seems old school and unsafe to me.) However, taking this approach online helps me see its value. I previously wrote about the challenges of zero-based budgeting, but this approach seems a lot easier. You designate specific amounts for specific envelopes and enter transactions every time you spend. Goodbudget also keeps a running tally of how much you have left in each envelope.
You can refill envelopes progressively each month or the app will automatically re-populate your monthly envelopes at the beginning of the month with the same amounts from the previous month. Goodbudget also has an envelope-transfer feature, so you can rob Peter to pay Paul if there are any overages in a particular category. Goodbudget says envelope transfer is useful if you have multiple income streams, so I can see how this feature is beneficial for self-employed people like me who deal with a variable income. There’s also a category for unallocated money. The money can sit in that category or you can reallocate it to other monthly, annual or irregular envelopes — without the pressure of giving every dollar a job.
One of the best features of the app are the reports, where you track spending by envelope and can view income vs. spending. The spending-by-envelope report includes a pie chart that gives you a visual of what expenses take up the largest share of your budget. (There’s also an itemized list below it with percentages for each category.) The income-vs.-spending report is a color-coded bar chart categorized by month. This also provides a great visual for users, allowing them to see spending trends.
Hmm, Not So Much
I wish there was more automation so I could see more easily if the amounts I put in the envelopes actually aligned with my monthly expenses, especially for variable items like utilities.
There’s too much manual work. You have to add transactions manually each time you spend money, entering details such as the date of the transaction, the payee, the amount, and to which envelope it belongs. It would be so much easier if Goodbudget imported these transactions from your bank directly and then allowed you to sort or make corrections to them once they’re in the system. On the other hand, I can see where doing the data entry yourself makes you reflect on how you spend your money. That might work for some folks; I just found it tedious.
I also didn’t like that the free version lets you add only 10 monthly envelopes, and that you only get one account and two devices. In addition, this version only keeps one year of history stored on the app; so if you don’t switch to Goodbudget Plus, which costs $5 a month, you could lose all this valuable intel. The premium version comes with unlimited envelopes and unlimited accounts. Up to five devices can access the information and the app stores five years’ worth of your financial history. For $45 a year, it’s worth the investment. (Goodbudget offers a discount for an annual subscription too.) I just wish there was a little more flexibility with the free version, but you get what you pay for.
What Others are Saying
Goodbudget currently has a 4.3 star rating in Google Play. Many of the positive reviews tout the app’s user-friendliness and say that it actually has helped them save money.
“…I am able to go without any cash since the app allows me to track exactly what I have in the bank!” said one user. “I have made serious changes to my spending habits due to the report ‘spending by payee.’ I was spending almost 20% of my paycheck at a local gas station and had no idea!”
On the flip side, other users say the app would be much better if it had more customizable features. Others recently complained it was buggy and crashed every time they tried to use it.
- Couples who want more visibility into their spending, since the app allows two devices and syncs between them. Your spouse sees everything you see in real time.
- Anyone who currently uses the traditional cash envelope system and would like to try something new that follows the same principles.
Not Good For…
- Anyone who isn’t diligent about tracking their spending and would rather not be bothered with manual data entry. (The best way to use the app is to enter transactions right after you’ve done them — for example, your weekly grocery shopping. You also could download an Excel file from your bank and enter your transactions manually that way. But again, it’s a lot of effort, especially if you have several monthly or irregular expenses.)
- Cash-envelope devotees. I know this contradicts my earlier point, but people who tend to use the cash-envelope system are usually motivated by seeing and touching their money. Making this approach digital might cause the less committed to fall back into bad financial habits.
Budgeting (Free or Paid)
The basic version of the app is available for free download, but the premium version is $5 a month.
8 out of 10
About this series:
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