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Getting on a budget and sticking to it is not easy. In most cases it takes several months and lots of trial and error in order to make it work. But getting it to work is key to your personal financial success. I cannot emphasize the budget enough.
Deciding to get serious about budgeting is one thing, getting the budget to work is another– it can be a real challenge. One way to make the budget work is to use an envelope system.
Using Envelopes to Budget
It’s as simple as it sounds– putting cash into an envelope.
The basic purpose of budgeting is to cause us to live within our means– to live on less that we earn. We use the budget to tell our money exactly where it should go for that particular month. Putting a specific amount of money into an envelope for a specific purpose can help.
The budget helps us categorize our expenses and pay more attention to where our money is going. Spend the money on paper before the month begins.
When I say spend the money on paper, I mean literally write your household income at the top of the page and as you list your expenses, keep a running total of your income minus your expenses, all the way down to zero.
The expenses on the budget should be prioritized. The first things accounted for in the budget should be the necessities: Food, shelter, clothing, transportation, utilities; followed by your insurance payments and other debt obligations, then your other expenses (if there is money left over) e.g., fun, entertainment, travel, personal, more clothing, etc,.
Most of the necessities in the budget can be automatically deducted or paid through your checking account. I recommend doing this with as many of your expenses as possible. This is typical for most of your utility and insurance payments– power, gas, water, garbage, cable, telephone, car insurance, homeowners insurance, health insurance, etc,. Also, most mortgage or rent payments can be paid electronically though a checking account, as well as car loans, credit cards, or personal loans.
Set as many of these payments as possible on auto-payment schedules. In many cases you can get a discount if you do. This will make budgeting much easier.
The remainder of your budget will be strictly for discretionary spending or other non-essential spending categories and luxury items– things we don’t need, but if we have the money to do so then we can. As long as it is accounted for in the budget.
When I first started budgeting I used four envelopes: Personal, Fun, Food, Car Repairs. I literally took four envelopes and wrote the specific category on the front of it in magic marker and put the appropriate amount of cash inside. Then I used only the cash for each envelope for that specific category. Food for food. Fun for fun… You get the point.
The only thing I used my debit card for was gasoline for my car. Of course you could use an envelope for gasoline if you choose. Using auto-pay and envelopes made it much easier for me to manage my spending and stay within the limits of my budget.
When payday comes all you have to do is write a check for the amount you’ve determined for the envelopes, cash that check, and put that cash in it’s particular envelope.
For example, let’s say you’ve budgeted $300 for groceries. Write a check to yourself for $300. Cash the check and put the $300 in the “Food” envelope. Do the same with your other envelopes. Use as many envelopes as you like.
Using an envelope system will simplify the budgeting process. It will keep you in check throughout the month. You won’t have to keep track of how many times you’ve swiped your debit card and for how much. Basically, when the envelope is empty, you’re done spending.
Easy as that.