Here it comes, the end of the month. How are you doing? Are you making it? Will you make it?
The second bi-weekly check comes this week and we need to figure out where that money is going to go, creating a mini budget. Over the years I have learned how to budget. Some years we made a monthly budget for the whole year. Some years we made monthly budgets for part of the year at a time. Some years we made a budget (spending plan) a month at a time. It all depended on how dependable our income was. If you have never budgeted before, you can start practicing by planning your paychecks first.
A lot of people use the envelope system. We started out that way, and now use a modified version since we have a bank account. The envelope system is a way to track exactly how much money you have in
each budget category for the month by keeping your cash tucked away in
envelopes. When you shop for that category, only use what’s in the envelope. The envelopes are also a way to save up for upcoming expenses. If you have a bank account, you don't really need an envelope for things that happen the same each month like rent or utilities. They are most helpful for the extras
Step one: Figure out what you spend your money on. An example list could include:
- Groceries
- Gas
- Medicine/pharmacy
- House stuff
- Car maintenance
- Personal (1 for each adult)
- Entertainment
- Gifts
- Taxes
- Emergency
- Giving
- Clothes
- Hair cuts
- Eating out
You aren't limited to this list, just figure out what you spend money on and make an envelope for it.
Step two: Figure out how much you want to put into each envelope. Start with your total income, subtract rent, utilities, insurance payments, any other regular bills. This will tell you how much you have to fill the envelopes. Then figure out how to divide what's left into your envelopes.
For example, We spend about $20 on each birthday, so $20 x 4 is $80, plus we hope to spend $60 each on Christmas, so $240. $240 + $80 is $320. Now I divide that by 12 months and know I need to put $27 a month in that envelope. Then on the front of the envelope I label it Gifts- $27 a month. If we exchanged gifts with others, I would make sure to add that too, but we just gift to our little family. Or for property taxes, I put the total we owe, divide by 12 and figure out how much we have to put in each month to make sure we have it when it is time to pay. Same goes with gas, etc.
Step three: Put cash in the envelopes. You will probably not be able to fund all of the envelopes in the same paycheck, so make sure you fund the ones you will use immediately first. So for our first paycheck of the month I partially fund the Groceries, Gas, Restaurants, Medicine/pharmacy, and Car maintenance. With the second check I finish the Groceries and fund the rest.
Step four: Once an envelope is out of money, you have to stop spending. I use the front of the envelope to keep track of any notes I need to make.
Step five: Decide what to do with any money left in the envelopes at the end of the month. Maybe it goes to pay off debt, or you put it in savings or your emergency fund or you put extra in the gift envelope to pad out Christmas, or maybe you do something different every month.
This will probably need tweaking as you go along, budgets are living things as circumstances change, so don't be discouraged if you need to make changes. Hopefully this system of budgeting will work for you and give you the feeling of control over your finances. There are lots of websites that can walk you through the process
If you have a different way of budgeting that works for you, feel free to share in the comments!
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