Credit card management

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  • Updated 6 months ago
How does money move around in Goodbudget for things purchased with a credit card? Does money taken from an envelope go to a "holding" place for future CC payment? I pay my card off each month and I am new to GB. Thanks
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Arron

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Posted 6 months ago

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Wayne Woodbury

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Hi, Arron,

When you receive money or spend money, you will record a transaction that affects both your envelope balances and your account balances.  However, when you "transfer" money, only one of them is affected.  When you pay your credit card, you transfer money from your checking account to your credit card account.  This does not affect your envelope balances.  Likewise, you can transfer money from one envelope to another without affecting your account balances.  Transfer transactions in Goodbudget allow you to select either Envelope or Account, but not both.  A credit card payment is simply an Account transfer and should be recorded as such.  When you make a purchase with the credit card, money is leaving you, so you record an expense that affects both your envelope as well as your account balances.

The biggest thing that helped me understand this was to change the way I view accounts and envelopes.  Accounts and envelopes (your budget) are just two different ways of looking at the same pile of money; the accounts are the banks view of your money, and envelopes are your view of (or your plan for) your money.  It is the same pile of money.  Also, accounts represent the physical location of your money, and envelopes represent your plan for your money.

Aside from that, your envelopes and your accounts are not connected in any way.  You can move/transfer money from one account to another without affecting your budget, so an account transfer does not impact your envelope balances.  Likewise, moving money from one envelope to another (an Envelope transfer) does not affect the balance in your accounts.  For example, if you have $20 in your front pocket (your account) and you have decided (your budget) to spend $10 on dining (your Dining envelope) and $10 on a movie (your Entertainment envelope).  If you move the cash from your pocket account to your wallet account, your plan is still dinner and a movie.

Continuing, you stop by the theater before going to dinner to get your ticket and the ticket is $12.  You now have.  You record an expense transaction against your Wallet account and your Entertainment envelope so that your Wallet account now has $8 and your Entertainment envelope has $-2 (your dining envelope still has $10).  Notice that your total account balance and your total envelope balance are the same because both your accounts and your envelopes are still looking at the same pile of money.

Now, when you get to the restaurant, your bill comes to $9.  You could pay this bill with the cash you have in your Wallet account and then pay the last dollar with your IOU account, A.K.A. your credit card account, but you decide to save time recording transactions and pay the full amount with your credit card.  Again, money is leaving you, so you record a transaction against your IOU account and your Dining envelope.  Your Dining envelope balance is now $-1 and your IOU account has a balance of $9 (which is the same as a $-9 in relation to your account balances.  Now your total envelope balance is $-1 ($1 in Dining and $-2 in Entertainment) and your account balances are also $-1 ($8 is still in your Wallet account minus the $9 in your IOU account).

I hope that helps.

Wayne
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Wayne Woodbury

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By the way, I'm not advocating going into debt for frivolities.  The better solution in this scenario would have been to transfer $2 from your Dining envelope to your Entertainment envelope to cover the negative balance and you should have gone without fries at dinner (which would have also kept you from getting overdrawn in your calorie envelope).
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Alex Park, Official Rep

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Hi Arron,

Wayne's given a great explanation of how the flow of money in Goodbudget occurs when you make transactions. I just wanted to briefly connect what he said to your question about credit card payments.

When you make expense transactions through your Credit Card Account in Goodbudget, that Account will *increase* in balance, showing how much balance you have to pay off, just like your real-life credit card balance does. Then, when you make your real-life payment from your checking account to your credit card, in Goodbudget you'll show that payment as an Account Transfer from your Checking Account to your Credit Card Account, decreasing the balance of the Credit Card Account (showing you have less to pay off) and also decreasing the balance of the Checking Account (showing you have less money in your account).

Hope that helps!
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Wayne Woodbury

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Thanks, Alex.  I figured I was long-winded enough that talking about the accounting nuances of debit vs. credit accounts might put someone to sleep.  You are exactly right.  I would also point out that Goodbudget shows the total balance of your credit (labeled "Credit Cards" in Goodbudget) and debit accounts (labeled "Checking, Savings, Cash") next to "Total" at the top of the Accounts screen.  The total balance of Debt accounts (technically debit accounts, but tracked separately in Goodbudget) is reflected just underneath "Total" next to "Debt".
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Alex Park, Official Rep

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Teamwork makes the dream work!
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Arron

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I appreciate the tutorial and instructions. I'm sure it will become clearer as I use it and see how it works on my envelopes. Thanks!!