My main goal for 2011 was to get a lot stricter with spending in our household and really stick to a budget. Now...by BUDGET, I don't mean a loose use of the word, I mean a strict list of the amount of money that can be spent in set categories, ON PAPER and tracked with each and every dollar we spend. It's one thing create one and entirely another to ACTUALLY DO IT !
I've written before about the Envelope System, which I still feel is the best way to get total control over your finances. I started in January by first making the commitment and then getting my system setup.
Here's a quick rundown of getting setup:
Once you have your system setup it's on to the bigger tasks!
The first step is to Establish your actual Income & Expense Categories.
This FREE ONLINE CALCULATOR from Crown Financial Ministries is a life saver! If you are meticulous and input exactly the amount of income you are working with, you can see what you SHOULD be spending in each category (Housing, Food, Insurance, etc.)
Once you have the exact income entered, I recommend PRINTING it out to use as a guide. I adjusted the pre-set categories to meet our needs. I found it very easy to use their recommendations for the suggested % of spending based on income and tweak it to customize for our family.
Whenever you have calculated your own categories & expenses, you are ready to create your Envelopes.
On the front of each envelope, write the Category (i.e., housing) AND the amount you have alotted to spend in that category based on the calculator above.
As the bills come in during the month, I write their amount on the envelope for that category. Same goes for other spending such as eating out, emergencies, etc. Once those amounts meet the amount specified on the front of the envelope, THAT'S IT ! You have to choose to either take money from another category (causing a shortage there instead) or you just can't spend anymore on the category for the remainder of the month.
Now - this is easy when you reach a limit for something non-essential such as eating out. What about an unavoidable increase in a category?
This month we have gone $77.63 OVER what was budgeted for HOUSING. For us, Housing expenses only include our house payment, power bill and water bill. For some reason, our water bill was $77.63 higher than usual, so we are OVER BUDGET
Because I know that I can Coupon & decrease spending on groceries, I chose to take that $77.63 from the Groceries Category and adjust the spending in that category. This way we stay on budget for the month and don't pull that amount from saving or other categories I feel are more important.
As you see, you can always adjust as you need. The point is to track your spending and also be able to see it all on paper. The full amounts of what is coming in and what is going out.
Before I did this, I knew that we should have EXTRA money leftover every month, but somehow we never did. This made it very clear to me and gave me even more incentive to stick to the budget, so that we can achieve our savings goals.
I hope that breaking down the envelope system in a little greater detail helps some of you! It is very empowering to know you really are in total control & awareness to the penny !
I'll be updating about my new budget & use of the envelope system as well as my savings goals each month. No matter how much/little income you have or how much debt/bills you have, the most important decision you can make is to put it on paper and create a plan and set goals.
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