Friday, April 16, 2010

Sticking to the Budget (Envelope system)

A written budget is all fine and dandy, but if you don't stick to it, it is borderline pointless. So how do you stick to a budget? Well for one thing, if you are married, get your spouse to look over the budget with you and give you the A-Okay nod.

If you've got your spouse's okay on the budget, then you know he or she isn't going to mess things up.

The second thing you do is give yourself the okay to change the budget. Budgets should be changed at least monthly. Like we said in the Budgeting Basics post, finances change a little from month to month.

There are four additional things that I would suggest doing with your budget. The first is to make whatever you can, as much as you can, automatic. You might have a hard time remember to pay your utility bill, but if you let the utility company zap the money from your account every month, viola you stuck to your budget. At least for that part.

The other suggestion is to use the envelope system for things that you buy in person. Things like groceries, clothes, entertainment, eating out, etc.

When you get paid, look at your written budget and see what kind of things you can easily pay cash for. Say your budgeted $200 for groceries, then take $200 out of the account and put it in an envelope marked "Groceries." When that envelope starts to run low you are done grocery shopping. Remember to budget realistically with this.

Like I said earlier, you can also use the envelope system for clothes, eating out, and entertainment. It works the same way as it does for groceries. When your clothes envelope starts to run out, you are done buying clothes for that time period.

My third suggestion is to refill the envelopes often. Especially when you are just starting out, and especially with things that you regular shop for. Perhaps your clothes envelope will be untouched for two or three months. That's fine, just let it build up. But your grocery budget might be easily spent the moment you put money in there. So if you get paid bi-monthly or every other week, try to fill it up with every pay check.

So say your written budget says you'll get $200 for groceries this month. Split it so that you get $100 with the first pay check and $100 with the next pay check. That way if you blow all your grocery money, you aren't stuck eating rice and beans until the end of the month. If needed, you can also take $100 out with one pay check, but only put $50 in the envelope, and put the other $50 in an envelope for the next week. Either way, the more often you refill the envelopes the less likely you are to feel trapped by your budget.

My last suggestion is to budget realistically and to change your budget mid-month if needed. I often use the example of someone budgeting $50 a month to feed their family of ten. Sorry hun, but that probably isn't going to work. But say you get mid-way through the month and you realize that what you budgeted for groceries (or any category for that matter) isn't going to cut it. Then change your budget. Maybe you'll put a little less than you had planned into entertainment and more into your grocery budget. Maybe you won't go to the movies, or spend $200 on clothes. Whatever it is, remember that you have a zero based budget, so if you want to add to groceries, you'll have to take away from something else unless you can find more income.

If you change your budget mid-month make sure to get your spouses approval again. That way you are both on the same page with your finances.

Also keep in mind that with a zero based budget, having your online bank account show that you have money, doesn't necessarily mean you can spend it on whatever. Yes you should keep a little cushion in there because of glitches, double billings etc. but money in your bank account has already been earmarked for something else- so don't touch it.

Use cash when you can, make it automatic when you can't.
Remember that the budget is yours. If you want to budget $1000 every month on entertainment, the only thing stopping you is your income. Budgets can be fun too.

*A special note with fuel*
We don't use the envelope system with fuel. We keep a certain amount in our checking account that is used for fuel. I know other people buy a gift card from a gas station and refill it every month. Other people don't mind paying with cash. Whatever you want to do with fuel is fine as long as you stick to it.

No comments:

Post a Comment