My Personal Finance Manager of choice

I've recently switched finance manager software, and as it seems to be a hot topics these days I've decided to talk a little bit about it here.

I used to use Cha-Ching. I had been using it for a year when I realized it was not satisfying my needs. It was also then that I realized I was locking my data in it, as the only export solution it provides is through a very limited Comma Separated Values file containing only the transactions date, amount, and title. As there is much more data in Cha-Ching, mostly tags and notes, this was clearly not satisfactory.

When thinking about what I would expect from a good finance manager, I realized that there are actually three temporalities for finance management:

• looking at the past: archiving previous transactions, for instance for record purposes;
• looking at the present: reconciling current transactions with the bank, and making sure the balances does not go in the red;
• looking at the future: planning ahead, both from month to month as well as planning big purchases.

I don't care much about the past: my bank provides me with PDFs of my statements that I can archive away, and that are text searchable. The only use of the past I find really interesting is in planning for the future, by showing me how I used to spend money. Knowing about the present state of my accounts is useful, and was the main reason I used a finance manager. But what I actually really want is to plan ahead, to know how much money is left after the rent, utilities, and groceries are paid. So that I can go on boardgame or book buying spree knowing it won't kill my finances for several months.

But I guess that Bret Victor, in this wonderful article I've mentioned previously, says it much better than I do:

Consider personal finance software. Entering and classifying my expenses is, again, tedious and unnecessary manipulation--my credit card already tracks these details. I use the software to understand my financial situation and my spending habits. How much of my paycheck goes to rent? How much to Burrito Shack? If I give up extra guacamole on my daily burrito, will I be able to buy a new laptop? What is my pattern of Christmas spending, and will I have to cut back if I don't take any jobs for a month? If I buy a hybrid car, how much will I save on gas? I want to ask and answer questions, compare my options, and let it guide my spending decisions.

This is why I've started using MoneyWell. This article is not a review of MoneyWell, it has no screenshot, nor it is a tutorial. There is already a lot of information on MoneyWell's site, including several nicely done tutorial screencasts. What I want to highlight here is where MoneyWell shines and works well with me.

The first thing you should do when you start using it is sit away from the computer, and think. So you can also do this at home, even if don't own a Mac! Just take a sheet of paper, and start listing all the different categories where you spend money. There are many of them, such as rent, utilities, health, music, groceries, transportation... I found useful then to get back to my computer and look at some bank statements, to see if I was not forgetting anything.

Then, inside MoneyWell, I created corresponding Buckets. Each bucket corresponds to a spending category, and each time you spend money you associate the transaction to the bucket, but we'll come back to this later. (It's all right if your list of buckets is not perfect, one can always add or remove buckets at any point.) I also created an income bucket, Salaries, for the money coming in.

I then moved to the second step: the Spending Plan. The idea there is that you enter how much money comes in each month, and how much you want to allocate for every bucket. This is where having previous data is very useful, to estimate how much one spends on groceries or utilities every month, for instance. But even a first rough estimation would be useful, to be refined in later months (MoneyWell can actually tell you what you spent on average, looking at the previous months). The goal here is to have a balanced plan, where you don't plan to spend more than you earn.

Then the last step happens when the money comes in, for instance when your salary is paid. You enter this incoming transaction, allocate it to an income bucket, and then you hit the Allocate Income button. This takes the money from the income buckets and distribute it in the expense buckets according to the spending plan. If there is too much money, the leftover is left in the income buckets for future allocations. If there is not enough, then some spending buckets do not get their full allocation. (You can specify some priority there, saying for instance you should first allocate money for rent, then only later for games...)

So you now have money to spend. Every expense is then assigned to a bucket, and you can always follow how much remains in a bucket for this month. If you did not spend the full allocation at the end of the month, then it is carried over to the next month, and if you spent too much, you'll have less to spend next month. And you can easily manually allocate money, moving it from one bucket to another, which is very useful since spending plans are never perfect plans.

So this was a very quick overview of what I find to be the most interesting feature of MoneyWell. What I really like about this approach is that MoneyWell isn't just a simple way to balance your accounts, which of course it can do, but that it also provides this alternate view of how you spend your money. It empowers you by letting first you plan then follow what you want to do with your hard-earned cash. And I find this invaluable.

Oh, and one final great thing: MoneyWell's support. Kevin Hoctor is amazingly responsive on MoneyWell's Google Group, or through private email. Nothing better than having the author of the software answer your questions in less than 24 hours!

Update (2008.05.10) There is now a video of a KeyNote presentation explaining the envelope-based concepts behind MoneyWell. I highly recommend watching it.