Budgeting. It’s a word that can strike fear into the heart of the most courageous man or woman.
But in reality, budgeting is nothing to fear, it actually can set you free!
It may not feel like it at the beginning when you want to buy something in the grocery store and realize you’ll either have to give it up or buy it instead of something else. No one said budgeting is easy, but who said life was meant to be easy? You will find that the rewards that budgeting will give you far outweigh the small inconveniences.
Here’s the deal. You’re going to have a certain income. You might try to increase it, and that’s great. But either way, you are going to have a certain amount of income every month.
Without budgeting, your spending certainly might end up falling within your income. If you (and your partner) are naturally thrifty people, it’s definitely possible.
But the odds are since you’re not keeping track of your spending, you might end up with an overdraft. Or being left with not enough money for groceries the last week of the month because you saw shoes you just “had to buy”.
With a budget, spending is guilt-free! You dedicate a certain amount of money towards each predicted expense, and that’s it. It’s like the money is gone. So buying a pair of shoes when you see that you have enough money in the “fun shopping” envelope will leave you with absolutely no guilt, because you’ve dedicated money towards that anyway.
A really easy and basic way to budget is the cash envelope system. Many people have touted the idea of the cash envelope system as THE ONLY system with which to budget. It’s not. It may not work for you. But I, personally, love it. It’s a simple, no-brainer way to allocate your money and make sure you’re not overspending. Who needs to complicate things?
RELATED: WHAT TO DO WHEN YOUR BUDGET FAILS
The pros of the cash envelope system:
- You’re less likely to overspend because you actually see the cash leaving your hand and how much you have (or don’t have) left.
- It works!
- It’s simple. If you’re just getting used to being on a budget, you need to make it as easy as possible for yourself to keep track. If there’s money there, you can spend it. If not, you can’t.
The cons of the cash envelope system:
- You won’t get credit card points if you were used to getting them until now.
- It only works if everyone in the family who spends money is on board.
Jordan Page at FunCheaporFree.com has an excellent post (complete with video) all about it. She has a lot of other ideas, such as having seven (yes, seven) bank accounts, but we’re not up to that just yet. The envelopes are where we’re at, and it’s awesome.
This is how it works:
You can divide your budget up monthly, weekly, or by paycheck. My husband has his own air conditioning business, so we don’t have a regular, consistent paycheck. So we take what he made one month and budget for the next month. But if you do get paid regularly, I suggest you budget by paycheck and then divide it into a weekly budget.
A week at a time is much easier to think about than a month!
If you’re just getting started budgeting, check out this post for learning to budget.
- You’re going to want to start an emergency fund and you’re going to put a certain amount in every month (if you’re not up to that, that’s fine. But as soon as you’re seeing that you have some leftover money at the end of the month, start doing this. It’s important. Emergencies do come up, like unexpected car failure, or medical emergencies G-d forbid, and you’re going to want to have a cushion.)
- As per Jordan’s advice, we divide our spending into Grocery, Family, and Other. But honestly, you can have as many envelopes as you want. You can have food, entertainment, bills, home, recreational shopping, gifts, eating out. But we like to keep it simple. Our “Grocery” budget includes anything you can find in the grocery store. “Family” is for set monthly expenses like school, utilities, rent/mortgage, car payments and home costs. “Other” is pretty much anything else, like babysitting expenses, haircuts, gifts, eating out, etc.
- For set “Family” expenses, like school, rent, car payments etc. – basically anything that will be paid by credit card, online, or post-dated check, you will make sure to leave that amount in the bank. It’s pretty safe to leave it in the bank (as long as you leave that credit card at home!) because odds are you’re not going to be impulsively overpaying your rent or tuition!
- We decided how much our budget should be by averaging out 3 months of expenses and then cutting it down. She recommends cutting it in half and trying to spend only half the money, but, to be honest, we aren’t big spenders on extras, so most of our expenses were set expenses, like school and rent, and groceries. We did cut down on our grocery spending by sticking to meal plans, buying in bulk when we could, and trying to keep the shopping to once a week unless it’s for basics like milk and bread.
- Then you divide up your allotted weekly amount into the envelopes. Put receipts back into the envelopes and keep track of what you’re spending. We use a monthly Google Sheet that we share and can check at any time from our phones. We made a sheet for every category, and then we put in how much we spent and what we spent it on.
- Most budgeting advisors will tell you NEVER to cross-spend. I.e. if you run out of money for groceries, don’t go taking money from the family envelope. But as Jordan pointed out, life happens, and you might occasionally need to take from one envelope to compensate for another. But ONLY WITHIN THE WEEK. Do NOT take money from your next week. Make do with what you have.
- Ideally, you want to come in under your weekly budget. Ideally. If you can’t, you can’t, but if you do have money left over at the end of the week, you can put it in savings, your emergency fund, or a “fun fund”. If you have debt, use it to pay off debt.
- The great thing about this is that the money is THERE. It’s not mythical money floating around the bank. It’s much easier to know where the money is going when it’s in front of your face.
That’s pretty much it! These are the basics of envelope budgeting. It works for us, and it can work for you too if you stick to it.
If you’re interested in the cash envelope system, check out these other posts about it!
- Of course, Jordan Page at FunCheapOrFree.com has her awesome post and video all about her envelope budget.
- Miko at The Budget Mom uses color-coded envelopes to help her assess her situation at a glance.
- The money guru, Dave Ramsey, gives you a quick rundown of the envelope system so you can decide if it’s for you or not.
- Natalie Bacon explains it clearly and concisely!
I recommend reading up about it and melding together the different parts that speak to you from each budget. Every family is unique and has its own unique set of circumstances, financial and otherwise. The important thing is creating a budget system that will work for YOU.
Have you ever tried the cash envelope system? Why or why not?
Yael is a happy mom of 4 gorgeous boys aged 7 and under. In her blog, An Organized Mommy, she shares her methods of being productive both in home management and while working from home as a mom of young children, while still managing to make time for the things that matter. Yael works from home as a virtual assistant in addition to blogging, and you can check out her services here. Don’t forget to follow her on Facebook & Pinterest!
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