Introduction

Introduction

The Envelope Budgeting System

In the old days, before computers, online banking and even before credit cards and checking accounts, many folks used envelopes to help control their spending. Each time they got paid, they would allocate the money into a number of envelopes each marked with a category like, groceries, clothes, church offering, etc.

When it came time to go to the store, folks would grab one or more of their envelopes and would know exactly how much they had to spend. When times were good, they might have enough to buy something extra and when times were tough, they stuck with the basics. In either case, this simple and reliable budgeting system kept track of how much they had and enabled them to control their spending.

The system was very flexible. Sometimes, when one envelope was a little short, they might transfer cash from another envelope that had a little extra. They didn't have to remember how much they could spend on what, the envelopes always had the answer.

Same Old System, Brand New Technology

Like most personal financial software, Principal Plan allows you to manage your bank accounts using traditional ledgers that record individual transactions. You can track any kind of account: checking, savings, and even credit cards. You can sync with your bank by importing transactions online, or you can enter and edit transactions manually.

What makes Principal Plan different are the Envelopes. Every penny in the system is allocated to an envelope. When money gets deposited into an account, it is simultaneously allocated to one or more envelopes. When money is spent, whether via check, credit card, or cash, it is simultaneously deducted from one or more envelopes.

So, you might have $1000 in your checking account, and $500 of it could be allocated into Groceries, $200 into Clothes etc. When you go to the store, you might write a check for $200 with $100 of it coming out of one Envelope, $50 out of another and $50 out of another. No need to remember how much you can spend on what. The Envelopes will always have the answer.

Allocating Income Is Easy

Using the old envelope system, it could be a bit of a pain to put the correct amount of money into the correct envelope. Big bills would have to be broken up. Principal Plan provides you with Transaction Templates, which are like reusable transaction blue-prints. With Templates, allocating money to envelopes is simple and quick. When income is recorded, all you have to do is select the appropriate Template and the software does the rest.

And Income Templates can be easily viewed side by side in the Allocation Plan, which allows you to see how all of your income is allocated over the course of the month (or any other time-frame). You might get paid twice a month and your spouse may get paid once. You could create a Template for both income sources and view them side by side in the Allocation Plan.