In 1994 I earned about $9,600 working for a non-profit. It was good experience. And I managed to live on $800 a month with relative ease. In the spring of 1995 I got my first software job. My salary was $30,000 dollars. Finally I was earning real money.

Fast forward to the end of 1995 and I found myself facing a credit card bill I could not afford to pay off. I was officially in debt. How had I lived on so much less without any debt? What went wrong?

One evening at my parent's house I told my tale of woe to Brian, a family friend. He offered to help and invited me over to his house that weekend. That Sunday we sat down at his kitchen table and he showed me something that changed my life. He showed me a binder.

The binder contained sheets of graph paper separated by colored dividers. Brian, who earned over 10 times more than I did, kept track of his spending using this binder. The system was very simple. Each divider represented a category of expense. One for groceries, one for eating out, one for vacation, etc. Each time Brian was paid he allocated a portion of his pay to each section in his binder.

For example, on payday Brian adds a positive entry in the groceries section for $200. Each time he buys  groceries he debits the amount he spent from the same section. When the balance is zero or less, there is no money for groceries anymore.

What makes this simple system so effective is that the focus is on how much money you have in each section instead of how much money you have in the bank. That way you can always see exactly what you can afford to spend on any one expense.

My friend then set about creating a budget for me so that I could have my own binder. He asked me questions about my spending and made suggestions about what categories I should use. He cautioned against categories that were overly ambiguous or overly granular. The key is to find the right balance. I think we ended up with about 10 categories that looked something like this...

·         Cable

·         Car Expenses

·         Car Insurance

·         Car Payment

·         Clothes

·         Electricity

·         Entertainment

·         Groceries

·         Rent

·         Vacation

On top of this I would save some amount of money as well.

I went out and bought a binder and started doing exactly what my friend recommended. It was arduous keeping receipts and entering everything by hand but after a few months I had paid off my debt and felt on top of my spending.

In a short time I abandoned the binder in favor of spreadsheets and then software that I wrote myself. The software has evolved in the last 13 years to the point where I just open it every day, look at how I am doing and close it again. Transactions download from my bank automatically and most of them are automatically placed in the right categories.

I created the software for myself. But a few years ago I showed it to a friend and he asked if he could use it as well. Of course I said yes. Since then we have worked together to make the software as simple as possible. We both believe that this system is the simplest and best way to stay on top of spending. And now we want to share it with as many people as possible.