BudgetMagic is a modern version of a time-tested system: years ago, folks devised a simple yet effective budgeting method known as "the envelope system." To use the envelope system, a person set their budget for a particular expense, and then placed that amount of cash into a paper envelope. When they wanted to spend money in that expense category, they took cash from the envelope. When the envelope was empty, they knew they had used up their budget for that expense. BudgetMagic is today's version of the same concept. Instead of cash and paper envelopes, BudgetMagic uses virtual money in Electronic Envelopes.

The Electronic Envelope is the "virtual envelope" used by BudgetMagic. This replaces the paper envelopes of the older system described above. For each expense category you set up, BudgetMagic virtually stashes the designated budget amount into the Electronic Envelope. When you enter information into the system to record what you have spent, the amounts are deducted electronically from the "envelopes." In real time, you are able to see exactly how much is left in each budget envelope. The secret to success with BudgetMagic is to keep the envelopes up to date, and to use the information to control your spending and stay on your budget. When the budget time period is over, you simply click the "Reset" button and the envelope is "re-filled" with the budgeted amount.

We recommend that you enter your expenses once each week. You certainly can enter them more frequently, but once per week works very well to keep you on budget.

The most practical way to monitor your Electronic Envelopes is to print out the Electronic Envelope window each week after making your entries, then post it in a visible spot like your refrigerator, or carry the printout with you until the next time you update the information.

The Monthly time period works well for tracking those expenses that occur each month. The Yearly time period is needed to track those expenses that don't occur every month, but which occur at some time during each year.

Yes, BudgetMagic provides an extensive list of common expense categories for you to use when setting up your budget.

That is no problem, just don't enter a budget amount for those categories. The Electronic Envelope window provides an option which will hide any categories with zero budget.

Yes, BudgetMagic makes it easy for you to introduce your own expense categories. In the Budget Worksheet, you can select a link to the window where you can easily set up a new expense category.

In general, the Monthly budget time period does have different expense categories compared with Yearly. For example, the majority of people do not take a vacation each month. Therefore, "Vacation /Travel" is not listed as a Monthly expense category. But it is listed as a Yearly category. Of course if you do take a vacation each month, feel free to add that category to your Monthly list.

No, the Yearly budget time period is for any expenses which occur less frequently than once per month. So this applies to expenses occurring quarterly, semi-annually, once per year, once every two months, or just unpredictably several times in a year. Any expense that doesn't occur each month falls into the Yearly category.

Certain expense categories are listed in both, because they can occur in either budget period. For instance, Insurance can be a monthly expense for which you make payments each month; or it can be a Yearly expense in cases where you pay it less often than each month. Some utilities are charged each month, others are charged quarterly. The former go into your Monthly budget, the latter would go in the Yearly budget. In these cases, you tailor your budget categories to match the timing of your expenses.

Once you establish your budget for Yearly expenses, these costs will be provided for in your Monthly budget, by a Monthly expense category called Deposit to Yearly. This is automatically calculated for you by the system. This is a way to set aside money each month, in order to make sure you have money available for your Yearly expenses when they come along. In this way, the Monthly and Yearly budgets work together as one system. The balancing of the budget occurs in the Monthly Budget Worksheet. Here you work to balance your Monthly Income to your Monthly expenses. Since one of those expenses is the Deposit to Yearly, a balanced Monthly budget means that your entire budget is in balance.

As described above, the Monthly Deposit to Yearly is a Monthly expense, an amount you set aside each month in order to provide for your Yearly expenses when they come along. If you prepare your Yearly budget for a full calendar year, this is calculated by the system by dividing your Yearly budget by twelve (for the twelve months in a year). That is the amount you need to set aside each month in order to provide for those Yearly expenses. If you prepare your budget part way through a calendar year, the system gives you the option to divide by just the number of months remaining in the calendar year. So, for example, if your Yearly budget is just covering a time period of seven months to the end of a calendar year, then you can set the system to divide by seven months to determine the Monthly Deposit to Yearly.

You always start with the Yearly Budget Worksheet. The information produced by the Yearly Budget Worksheet then becomes a part of your Monthly budget, because one of the Monthly expenses is the money you will set aside each month (Monthly Deposit to Yearly) to provide for your Yearly expenses. The Monthly Budget Worksheet cannot be complete and accurate unless and until you have completed the Yearly information. Once you have completed the Yearly Budget Worksheet, then you can move on to the Monthly. You can always return later to the Yearly, if you need to make modifications.

The first step is to prioritize your expenses and allocate funds first to essential costs. These are the costs you must pay, whose amounts generally cannot be adjusted. Next, fill in the amounts for your "elective" expenses: those that you can control through the choices that you make. If you find you are not in balance, reduction of these "elective" expenses is the best option to correct your imbalance between expenses and income.

For both the Monthly and Yearly segments of your budget, it is advisable to set up an expense category called "Contingency." This category provides a cushion to cover expenses that may arise unexpectedly. It's up to you to decide what amount of "Contingency" you want to build into your budget. Just be sure you provide enough to prevent unexpected expenses from ruining your budget plan.

To help you follow clearly the distinction between your Monthly and Yearly expenses, BudgetMagic recommends that you set up two separate bank accounts. One account will be used for depositing your Monthly Income and paying your Monthly expenditures; the other account will be used to pay your Yearly expenditures. You should be able to write checks from either account. You will want to move money from one account into the other at least once per month (Monthly Deposit to Yearly), so it is convenient to set up both accounts at one bank. That way, you can easily move funds using Internet banking or telephone transfers. If you already have one or both of these accounts, you do not need to set up new ones. For simplicity and security, BudgetMagic does not interface or link with any of your bank accounts.

Ideally, we recommend that you have an extra amount equal to one month's budget total in your Monthly account. For the Yearly account, we recommend you keep a cushion equal to at least half the total Yearly budget. However, you shouldn't let it stop you if you don't have that much money saved today. You can start using BudgetMagic right away to help you build that cushion of financial comfort.

If you enjoy the convenience of paying with a credit or a debit card, this works just fine in the BudgetMagic system, provided you record the transaction as if you spent cash. As a purchase is made by credit or debit card, you keep the receipt and enter the expenditure right away (without waiting for the credit card statement or bank statement). That way, your Electronic Envelope stays current to what you've really spent. Keeping your Electronic Envelopes up to date by entering all expenses each week is the key to staying on track. If you never spend more than what is in your "envelopes," you will stay on budget!

For checks written, record in your checkbook ledger; keep a notepad by your computer, or do a print-out to record online shopping or banking transactions; and for debit card, credit card, or cash purchases, keep the receipt. These will provide the reference materials you need when you enter your expenditures each week.

After you make an entry, place a check mark in the check ledger or on the receipt or other record to note the expense has been entered. Also, if you use the Memo feature to remind you of something about the expense, that information will appear in the Journal to remind you of the entry you made.

The BudgetMagic Journal tracks all your expenses and transfers, and includes an optional Memo for expense entries, so you can always look and see the entries you've made at a glance. If you're not quite sure if you entered something, you can confirm it in the Journal. The Journal provides a simple summary of spending that can help you create an even better budget next year. Also, the information is valuable in helping track tax-deductible expenses at the end of each year.

The BudgetMagic Transfer feature offers you the flexibility to shift a surplus from one budget category into another category, where you might not have a surplus. This is a "virtual" transfer from one Electronic Envelope into another. You are not moving real money. In essence, it is a way of "robbing Peter to pay Paul," in order to stay on budget. This enables you to change the amount remaining to spend in a specific budget category, but it does not alter the original amount budgeted for that category nor upset your balanced budget.

The BudgetMagic Journal helps when you prepare income taxes, because it enables you to look back at expenditures to see if they are tax deductible. If you believe a particular expenditure may be tax deductible, you should note this in the "Memo" feature of the Enter Expenses function. This makes it easy to refer to the Journal to review the expenditures that you believe may be tax deductible.

BudgetMagic is compatible with any savings or investment programs that you have now, or wish to have in the future. Whatever amount you choose to invest in such programs will simply become one of the spending categories in either your Monthly or Yearly budget. By following BudgetMagic's disciplined approach to spending, you will enhance your ability to save up to reach your financial goals.

BudgetMagic is purely and simply a valuable financial tool which provides a ready-made framework for setting up your budget, and the handy tools you need to stay right on that budget. BudgetMagic is simple to learn, and easy and fun to use.

BudgetMagic is a PC-based program. System requirements are Windows XP or Windows Vista. 256 MB of RAM; 20 MB of free disk space; Connection: Broadband, ISDN, Cable Modem, DSL or similar (sorry, no dial-up). BudgetMagic provides its own database which is included with the program.

support@budgetmagic.com.