Archives For budgeting tips

Have you ever heard of using the envelope system to budget? Envelope budgeting is an old technique that is coming back in fashion faster than big glasses and flannel shirts.

What is it? Budgeting with envelopes is simple. Certain categories you’ll designate to pay only with cash. You put that cash in an envelope each month and when the money is gone–its gone, no more spending for that category.

Why use Envelopes for Budgeting?

  • You’ll spend less money if you use cash. People who use credit or debit cards have higher spending rates? Why? It is due to a slight feeling of pain when you use cash. It’s true, try plunking down $100 cash for your next grocery bill.
  • Savings. We have an envelope for a future trip to San Francisco. When it fills up, we go!
  • If you constantly overspend in certain categories, this will help you curtail that spending.
  • If you get paid in cash or tips this system will give that cash somewhere to go, besides buying pizza. It will focus your money and you’ll think that you’ve got a raise.

Envelope System Video by 

Budget with Envelopes

1. Determine what categories you’ll spend “cash only” for. Common categories are groceries, eating out, blow money, entertainment, clothing, and gas. TIP: Don’t try to start too many envelopes at once, but incorporate a few each month as you get the hang of it.

2. When you budget add up the total you’ll need each month to fill all your envelopes. This may take a few months before you’re a pro and some months will require more cash than others.

3. Make envelopes for each category and fill them up with cash- Write a check to yourself or withdraw it from the bank. Some categories may be large like groceries and you’ll need to fill them twice a month or as you are paid.

4. Keep a ledger of on each envelope of when money is deposited and spent. This will help you track your cash and know how much you’ll need each month.

5. When the envelope is empty, STOP SPENDING! You made a budget, now stick to it. Don’t borrow from other envelopes or add more cash. You’ll have to say no until next when you get more cash in that envelope.

6. If you have extra cash, then it stays put and rolls over to the next month.

Some people also like the idea of ‘virtual envelopes‘, but I find that having cold hard cash in your hands is the best way to curtail my spending.

Using this system doesn’t work for everyone. If you stay with it through the learning curve, you’ll start saving money by spending less. My wife and I started out with about 8-10 envelopes ourselves, but at the moment we only use 4.

Action: Try using the envelope system and let me know how it goes in the comments. 

(Photo by BillRhodesPhoto)

[This is part of my How to Budget Like a Pro blog series]

Huddle up at the end of the month

How did you do? By this point you should have completed your pre-budgeting activities and completed your first monthly budget. What now?

At the end of the month or 1st day of the new month it’s time to huddle up with your money buddy (spouse or accountability parter if you’re single) and review how things went. This activity should only take 5-10 minutes once you get in the groove.

Huddle Around Your Budget in 4 Steps

1. Gather your budget, bank statements (online or paper), envelope system, open up your personal finance software, and sit down with your spouse or money buddy. (Reconcile your accounts if you haven’t done so yet.)

2. Celebrate any financial victories. If you never celebrate the small victories in life, chances are you won’t do much celebrating. Do a dance!

3. Did you go over budget?

  • Stayed in budget? Great! I knew you could do it!
  • Got money left over? Cool! What are you going to do with it? Roll it over to the next month? Put it towards debt or savings? Transfer it now.
  • Overbudget? That’s o.k. we all do sometimes. It will take several months to get a budget running smoothly. Now try to figure out what went wrong. Review some common budgeting mistakes you might have mande
4. Readjust your budget with what you learned for the coming month. If you’re able to pay off more debt or save a greater amount, then make it a priority.

Photo by joncandy

Action: Plan a post budget huddle. Go ahead and set a reminder for the rest of  year on the day you’ll  have your post budget huddle.

Avoid a Budget ‘Wipe Out’!

Congratulations, you’ve got a budget in place (click here if you don’t), but now you’re in trouble. Something just isn’t working and your budget is busted. You’ve just made an epic budgeting mistake.

You’re not alone. We’ve all done it. Now learn and try to avid the same mistake again. If you can avoid these common budgeting mistakes you’ll be ahead of the pack.

10 Epic Budgeting Mistakes

1. Gas and Food- You are just getting a handle of how much you spend in these necessary categories. You’ve got to eat and get to work, so put a little extra in these categories in the first few months.

2. Not Tracking Expenses- Making a budget is only 1/2 of it. Now you’ve got to track those numbers. Don’t rely on your online bank statements for this as it won’t tell you which bills are due, what checks are outstanding, and pending transactions won’t show up on MINT.  There are tons of ways to do this yourself. Pen and paper, excel, envelope systems, personal finance software like iBank 4You Need A Budget (YNAB), or Quicken (affiliate links). Find what works for you and track your spending.

3. Forgetting Annual Expenses- Every year there are certain expenses you’ll need to pay like memberships, school clothes, christmas gifts, insurance premiums, etc. When you first begin budgeting you have to remember about these annual expenses, but most likely you’ll forget some important items. Example: Save $50 each month so you’ll have $600 in December to buy those christmas gifts.

4. Not Having an Emergency Fund- Unexpected events and expenses occur. An emergency fund of at least $1000 will protect you from an epic budgeting mistake and shield you from going into debt.

5. The ATM Monster Ate my Budget- You can $20 your budget to death and you have no idea where you spent it. Have a plan for how much cash you’ll get out each month and stick to it. You just might have to tell burger and fries it’ll have to wait till next month.

6. Being inflexible- Some months you just have to be flexible with your budget. Making a budget is more of like art than a science (especially with an irregular budget). Be flexible and willing to change, just make sure your budget balances. If you spend more in category, you’ll have to spend less in another.

7. Unrealistic with your Spending–  $100 worth of groceries won’t feed a family of four, even if you are an ulta-coupon saver. Be realistic in how much you’ll spend.

8. Not Having Fun- You need to blow some money or you’ll sabotage your entire budget. A bit of mad money in your budget allows some steam to seep out. Have absolutely $0 in fun money for a few months and you’ll likely go crazy and make a large purchase or go on a spending spree. It can happen. Have an amount of money each month where you spend anyway and anyhow you want. Your spouse doesn’t even get a vote on this money.

9. Trying to Budget Without your Spouse on Board– This just won’t work. One will be frustrated and the other will feel controlled. Get on the same page with your spouse before you begin budgeting. Read more about budgeting for couples.

10. Saying  ‘Yes’- This will cause epic fail. Want to go out to eat? Yes. Want to go to the movies? Yes. Want to meet for coffee? Yes. Want to have cocktails after work? Yes. With your new budgeting lifestyle you’ll have to say no more often and/or get creative. Want to go out to eat? I do, but it’s not in my budget. Want to go to the movies? Sure, your RedBox or mine? Want to meet for coffee? Sure! (take your home-brewed coffee or fill up your coffee mug at the office). Saying “Yes” too much is especially a common budging mistake for singles (Read more tips for singles here)

What epic budgeting mistakes have you made? Your mistake might help someone else win financially. See you in the comments. 

Photo by:  Denis Dore Photography (Creative Commons)

[This is part of my How to Budget Like a Pro blog series]

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Stay away from ATM machines, especially one with a cat.

I was once single and know that it can be tough to be financially responsible with no one guiding you to wise choices. I made a lot of mistakes financially because I was young, but also because I fell for some common mistakes made by singles.

Budgeting Pitfall for Singles

  • Eating Out- This is a huge expense for singles and its hard to say no. If you want to meet your friends or have a social life it will be at a restaurant, coffee shop, or bar. You’ve got to get out and mingle to meet Mr or Mrs. Right. You can always have dinner parties , drink water when you go out, bring your own home brewed coffee to Starbucks, and sometimes just tell your friends you can’t go out because you’re broke.
  • ATM- You can ATM your budget to death and have no idea where that $250 went along with those nine $4 ATM fee charges. Limit your ATM withdrawals. The $20 bill is not the new smallest currency available.
  • Tired and Social Buying- Have you eaten out for lunch or dinner because you had a busy day at work and were just too tired to pack your lunch or cook dinner? Join others on a shopping trip, just to be included? You want to be included and will spend money just to avoid being alone. Just ask the girl eating alone in crowded restaurant if she fears being alone?

Budgeting Tips for Singles

  • Accountability- As a single person you need a financial buddy. Someone who you can show your monthly budget to. This needs to be someone who both encourage you and also tell you “No! You are out of control”. This probably won’t be your club hopping buddy or new dress of the week girlfriend. Choose a friend or mentor who knows more about money than you.
  • Acceptance- As a single person, your value and worth is not in how you dress, what you drive, or how many Michelin Star restaurants you dine at. Your value is not in stuff. You have intrinsic value.

Got any more budgeting tips for singles? Add them to the comments below. 

(Photo by Cyr0z

[This is part of my How to Budget Like a Pro blog series]

Photo by Duncan

Are you weird in your spending? Are you outside the box of normal? How do you know?

It’s generally ok to be spending less than others unless its for savings or retirement. What we worry about is if we’re spending too much money in certain categories. We could all use some budgeting tips right?

Thanks to some smart nerds (have you ever met a dumb nerd) we’ve got charts that show how much you should be budgetting for certain categories. Of course if you’re super rich or live in relative poverty, these percentages will be off.

Keep in mind that if you are a little higher or little lower in certain categories, it’s o.k. Don’t freak out. Take a hard look at your situation and your budget to see if any adjustments need to be made. If you’d like a second opinion, I’d also be happy to take a quick look.

Obviously you can’t spend on the higher % end for all categories or you’ll be in major trouble. It is also recommended that you don’t try to save for retirement and pay off debt at the same time. Focus will have a powerful affect.

Recommended Percentages for Household Spending

Budget Category Percentage
Charitable Giving 10-15%
Savings 10-15%
Retirement 10-15%
Mortgage or Rent 25-35%
Food 5-15%
Utilities 5-10%
Clothing 2-5%
Transportation 10-15%
Health and Medical 5-10%
Recreation 5-10%
Personal Expenses 5-10%
Debt 5-10%
Mad Money 2-5%

Action: Examine at your budget and calculate the percentages you are spending in major categories. Determine  if any adjustments need to be made. Comments are welcome below.

[This is part of my How to Budget Like a Pro blog series]