We all want to use a budget plan to help lower our monthly expenses. However, not everyone can commit to it because creating a budget can be tedious sometimes. This is probably why some people end up giving up on the whole thing.
But we all know that in this day and age, we need to be vigilant about our finances and the only way to do that is to adapt a budgeting system. Not only will it help you monitor your money transactions, it will also allow you to live within or below your means – whichever you have decided to adapt.
The simple envelope budgeting system
Admittedly, you have to accept that budgeting is tedious at first. That is because you need to list down all your expenses for the first month. This will help you create a realistic budget that will keep you from falling short because you missed out on an important and regular expense.
When you have listed all the purchases that you make, you may want to adapt the envelope budgeting system because this is the simplest form that you can hope to have. If you want to look for more budgeting software programs, visit About.com for some of the programs that they have reviewed and rated. But if you want to keep your budget implementation from being too complicated, using envelopes should be the perfect system for you.
Here are the steps to help you set up this budgeting system.
Get the materials. These include your budget plan (with the income and expenses list), envelopes, calculator and a pen or pencil. It is also advisable that you get a sturdy bag, purse or cash box where you can place your envelopes.
Determine the different categories from your expenses list. The less that you have the easier it will be. For instance, you can have food, groceries, gas, utility bills, daycare, debts and miscellaneous. Label an envelop with the appropriate category.
Assign all your expenses to a specific category. Make sure you have a breakdown of the expenses for each category so you will not make mistakes as you go from month to month.
Total the expenses on each category. Get the sum of the items on each category and place the amount in the respective category.
Round off the total amount and make sure you put in that amount every month or every payday.
These steps are with the assumption that your income is greater than your expenses combined. If not, you should choose which items must be sacrificed.
Now that you have your envelopes and they have the money in it, you know where you will get the money from. Store your envelopes in a box or bag and in a place where it will be kept safe. Every time you want to go to the grocery, you can take out the envelope labelled “Grocery” and use the money inside. If there is anything left, put it back inside the envelope and keep it there. If at the end of the month there is money left inside, you can opt to place it in your savings or just let it stay there so you have extra money for next month’s grocery. But if the money runs out, that means you can no longer spend on that category. Or you can look back over your budget to see if maybe you need to add more money into that particular category.
As you get used to a budget, you can begin to make some changes to the system as you see fit. Here is a video that you can watch for some alternatives to the envelope budgeting system.
Typical budget problems and the solution
In case the simple envelope budgeting system still does not work for you, there may be some problems that you need to address first. It is very important that you stick to the budget plan that you created – otherwise, it will be useless. Here are the common problems that people encounter when they try to implement their budget.
You have different due dates throughout the month. It can be confusing to have them at different dates and you can forget one of them. This can easily be fixed by calling your creditor to ask them to change your due date – specifically a day or two after your paycheck is released.
You overspend on your credit cards. These card purchases can really be tough to monitor and if you are new to budgeting, you may want to stick to cash purchases only.
You use up your savings. It is not advisable to include your savings with the other envelopes. Put it in the bank so it is not easy to get money from it. You can set up different accounts for various categories like your retirement, home, annual vacations, etc.
Your income is not a constant figure. If you have varying income, get the average and use that. Or if you can squeeze all your expenses into it, use the smallest amount that you usually earn as your basis for the budget. It also helps to boost your emergency fund to help tide you over the lean paychecks.
Just remember that budgeting is very important to keep your life from the destructive forces of debt. Try to follow your budget and see if you can find a system that will work best for you. It is not a rigid science. Feel free to come up with your own system. As long as it helps you monitor your spending and live within or below your means, then any budget plan will work just as well as the others.