I just ran across an article over at ChristianPF called “How To Start A Budget.”  He makes some great points that I’ve always told NeoBudget users looking for advice when getting started.  But of course, he says it much better than I could.  If you’re just starting out with NeoBudget, I highly recommend reading it.

I often have people write asking how to handle credit cards with the envelope method of budgeting.  Many people use credit cards to rack up reward points and pay off the balance at the end of the month.  There are two methods one could use, and NeoBudget users have successfully been using both methods.  Which one will work for you really is a matter of preference.

Method #1 – Separate Accounts

The method that is most true to the envelope method of budgeting is to keep track of your credit card in a separate account tab from your checking account.  You can download your credit card statement in a format supported by NeoBudget (currently QIF, OFX, and QFX which most banks and credit card companies support).  Then import that statement into NeoBudget just like you would your checking account.  The difference is that your credit card account will always be negative.

Throughout the month, your credit card account will keep getting more and more negative.  You can create envelopes inside this credit card account to track different categories of spending.  For example if you use your credit card only for gas and groceries, just create those two envelopes.

Now at the end of the month, you can look at the negative balances and know exactly how much to transfer from the corresponding gas and groceries envelopes in your checking account.

For example, lets say you have a $250 credit payment due.  Looking at your credit card account in NeoBudget, you can see that $150 was spent on gas and $100 was spent on groceries.  When you pay your credit card, simply record this transaction in your checking account and take $150 from your gas envelope in your checking account, and $100 from groceries.

Method #2 – Same Account

Another method that has been used is to track your checking and credit both in the same account in NeoBudget.  The benefit of this is that what you see in NeoBudget already accounts for your spending on your credit card.  So if you have $200 in groceries in your checking account and you spend $150 on a credit card, your envelope will say $50 even though you haven’t yet paid your credit payment.

To do this, simply import your credit card statement directly into your checking account in NeoBudget just like you would your bank account statement.

There are two pitfalls to watch out for with this method though:

First, this makes balancing your budget very difficult.  You can’t just go down the list and compare transactions with your checking account.  You need to look at both accounts and add the ending balances.  It can get tricky and confusing if there is an error somewhere.

Second, when it comes time to pay your credit payment, you have to fudge the books a little bit.  Since you’ve already recorded all the transactions in your account in NeoBudget, when you make a credit payment you are really just transferring money from one account to another.  And since both accounts are tracked inside the same account in NeoBudget, it’s a wash.  You either don’t record the transaction at all, or you record it twice: -$250 (the payment from your checking account) and +$250 (the payment into your credit card account).

You also need to track interest.  Usually this will show up in your credit card statement as a separate line item, so it should import just fine as if it were another transaction.

Conclusion

I recommend method #1 as it’s easier to track.  But I know of many people who use method #2 successfully.  It really boils down to doing what works for you.

Do you have a method that I haven’t mentioned?  Please let me know!

If you look hard enough you’ll find all kinds of practical money saving tips.  But it really boils down to one simple principle: spend less than you make.  Sometimes it’s the simplest concepts that elude us, or at least they’re the most difficult to live out in daily life.

“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” - Charles Dickens

We live in a society defined by debt.  Credit is easy to obtain and easy to abuse.  It doesn’t matter how great your financial counseling or how low an interest rate you get, if you spend more money than you make then simple arithmetic will catch up with you sooner or later.

NeoBudget provides tools that help figure out your monthly expenses and allocate your income to cover those expenses.  If your expenses are higher than your income then you need to either eliminate some expenses or increase your income.  Both are valid responses, but often it’s easier to eliminate expenses.

So what are the best money saving tips?

There are many techniques one could use.  In my budget, I treat savings as if it were a bill that is paid automatically.  I make regular payments into my IRA, my 401k, and my emergency fund.  These are automatically deducted from my checking account each month.  If it were left to me, I would often find another use for my savings payment each month.  Treating savings as a regular, recurring bill removes the decision process.  It just happens.

Of course, before I figured out how much money I could save each month, I had to tally up my monthly expenses and compare that with my income.  That’s where the NeoBudget income allocation tool helps.

How about some practical ways to save money in daily life?

When it comes to the practical ways to save money (that is, reducing your expenses so it’s well below your income), there has been a lot written about this on various personal finance blogs.  Rather than come up with my own list of money saving tips, I’ll refer you to these for further reading:

• 75 Painless Money Saving Tips (Dough Roller Blog)
• 106 Money Saving Tips for a Frugal Lifestyle (Zen Habits Blog)
• Saving Money at the Gas Pump (Federal Trade Commission)
• 70 Practical Ways to Save (Family Life Credit Services)
• 20 Small Ways to Save Big (Kiplinger)

Many people believe that a budget is a just way to restrict your spending and “tighten the reigns.” While this can certainly be a helpful use of a budget in some situations, a budget should not be viewed as a way to squeeze all the fun out of life. I’ve found in my own life that having a budget has freed me to give more and spend more on fun stuff than I would otherwise.

Last summer, I wrote a guest post on the FMF Blog titled Freedom From Budgeting. I encourage you to read the article. It explores the freedoms that come from having a good budget in place.

Your budget should reflect reality, not your wishful thinking. It is unrealistic to think that you’ll never spend a penny on having fun. So, why not budget for this? I recommend creating a “Fun Money” envelope in your budget. My wife and I each have individual envelopes for this purpose. This is money that we can spend on whatever we want without needing to ask each other or feel guilty for busting the budget. I usually use mine for things like buying an occasional iPhone game or stopping at Brueggers Bagels for a coffee while running errands.

The point is that having such an envelope can really liberate you. If you tend to overspend on frivolous things, this envelope will reign you in and give you an allocated amount each month to spend. If you always feel guilty for spending on fun stuff, then this envelope will liberate you from constantly feeling like you’re busting the budget by buying a coffee.