February 23, 2018

Last week I shared with you the challenges fintech companies have had in helping consumers change their behavior. Colorful graphs and charts in a budgeting app don’t do much to help consumers be proactive in managing their finances – they just report data after the fact.

However, I did find one startup that is doing a great job of intervening between a consumer’s “buy” impulse and the actual act of spending. The company is called ProActive Budget.

In the most simple of terms, ProActive digitizes the traditional cash envelope budgeting system. The cash envelope budgeting system has been around for over 100 years, and the idea is simple – you divide your spending money each month into different categories – e.g., gas, groceries, eating out, etc. – and each category gets its own physical envelope. Then you spend the money during the month from those envelopes, which ensures that you stick to your budget and avoid overdrafts and credit card debt.

My wife and I tried this traditional system. While we love the simplicity and how it forces you to stick to your budget, it isn’t perfect. For example, my wife might have the grocery envelope, and then I would go by the grocery store on my home without the envelope. This would require a lot of reconciling and moving money around after the fact. Eventually, we found that physical envelopes didn’t work for our lifestyle.

This is one problem that ProActive solves. ProActive provides a mobile app that digitizes the envelope system and connects it to a spending card. This eliminates the need to carry around multiple envelopes and cash. Even better, the process of reconciling/adjusting isn’t needed since multiple users can be linked to one account, so there is only one version of each envelope and all users are synced.

It also vastly reduces the risk of fraud, since the spending card is “dead” when not activated. In order to spend from your card, you use the app to choose the spending category, which then loads the card with money from that category. So unlike your debit card, if someone steals your spending card, it is worthless without the mobile app.

You can see how with this system, the user is must think ahead to budget before spending money, and then is held accountable to their budget by having to stop and load the card from a specific category before spending.

I like this solution so much that I caught up with ProActive Founder/CEO Ryan Clark. Below is a condensed and edited transcript of our conversations.

What inspired you to start ProActive?
[Ryan] I’m a financial planner and coach.  I wrote a book a few years back where I laid out three steps for building wealth. Step one deals with controlling your money, so budgeting and debt elimination, with the goal being to be able to consistently save for the future. As I was completing the book project I began seeing how many people needed this one step in order to really change their lives.  I wanted a system that was built in to how we bank – a digital system just like cash envelopes where the bank is the budget and the budget is the bank.

Why did you use the envelope system structure for the system you wanted to build?
[Ryan] Current budgeting systems are all a chore and most people don’t need more chores, they need less.  Cash Envelopes has been the most effective budgeting system for the past 100 years, but it’s not that it’s based in cash, it’s not the envelopes, it’s that it requires the user to have to choose before they spend.  They have to think about which envelope, how much is available in that envelope…they have to think before they spend. This is its power.  We aimed to mimic this behavior.

What’s next on your product roadmap?
[Ryan] With our expansion we’re adding all banking features and incorporating debt elimination in order to become the first Financial Health focused Mobile Banking system in the marketplace. After years of testing and proving we’re going to fulfill our full vision this year.  I’m pretty excited.

To learn more about ProActive Budget and hear stories from customers who are using the product, head over to their website here.