Budget Part 2

In the first budget post I talked about some of the finer points of decreasing expenses like selling toys and cutting lifestyle. We looked at sample lines in a budget, and I gave ideas for lowering some of those expenses. Now I'll write about how to find out what you're really spending on discretionary items, when and how to use envelopes, and how to implement a zero based budget.

If I've gotten your interest, hopefully you've written a rudimentary list of lines in your personal monthly budget along with figures of what you think you spend on each item. If your budget shows you should have $500 left at the end of the month, but you aren't seeing it, the problem is you're spending more than you wrote in the budget! Look back at all your expenses. Some lines will be cut and dry. For example, your rent/mortgage payment won't change from month to month. Other lines will vary, but you'll know in advance how much you're going to owe, like the utility bills, and you should be able to come up with an average amount. For other lines, you're going to have to pick a number and make them obey.

Those are the envelope lines. For many of our daily expenses we use cash envelopes to make sure we don't go above the amount we intended to spend. Every two weeks, $150 goes into the food envelope, $30 goes into the toiletries envelope, $20 goes into the pets envelope, $60 goes into the kids envelope, and Mitch and I get our cash. When an envelope has run out, it's gone. If we want something and don't have the cash in an envelope to buy it, we force ourselves to wait. Delay of gratification. Simple in theory, difficult in practice. You'll get used to it, and believe me you'll like seeing your debt decrease/savings grow as the case may be.

We've always had a budget since Mitch started working at his current job, which was about a year before we bought our house. About 1.5 years ago, I felt like despite having a budget, we never stuck to it, and we never got ahead with savings, although we were able to pay for everything and never incur debt. At the beginning of a pay period it would seem like we should have $300 left over to save, by the end of the pay period it had been spent. We had two problems.

One was solved by implementing the envelope system. Food was where we were hemorrhaging money. I remember at the end of one month I logged into our bank account, went over our statement, and we had spent over $550 in food. It was ridiculous! It was not what I had written in our budget. We were eating out way, way too much. Part of the problem was Mitch would buy stuff at the cafeteria at work or go to QT, and instead of it being allocated to his blow money, it would end up (by necessity) being added to the food budget. Envelopes really helped get our discretionary spending on track, and put an end to petty arguments.

The second problem was solved by applying the zero based budget at the beginning of each pay period. Our pay hits the account every other Thursday, but every other Wednesday I can view the amount. I began deducting all our expenses for those next two weeks from the total paycheck, and on Thursday we'd all drive to the bank and the amount that remained in the "save" column would be applied to our mortgage. I gave about a $15-20 leeway, not going down to completely zero, but I made it close enough that we wouldn't be tempted to spend extra. This made a huge impact, immediately! This is where the magic happens. You're saving at the beginning, not at the end, and it's a done deal. If you had consumer debt, you'd write a check or automatically pay your current lowest amount the first day. If you're saving up for your efund, that amount goes in the efund account the first day.

This is a huge step, but to take it you have to be incredibly detailed. I do my budget handwritten in a spiral notebook. At the top of each page is the month -- "July 2011" -- below that I have on the left hand side, to the left of the margin about 5 spaces down, I have a list of our expenses starting with "tithe." On the left hand side, to the right of the margin only 4 spaces down I write "Due" and then everything gets either the due date or an "E" for envelope. Tithe I pay the entire 10% for the entire pay period the first Sunday after we're paid. Sinking funds are automatically deposited into a different account. CFCA, PITI, gasoline, cell, internet, and MMA/YMCA all have the same due date each month. I get emails from gas/electric telling me their specific due date each month. Water sends a paper statement, so I write down the due date when that comes in the mail.  Then on the first line, in two columns, I write the pay periods: 7/14-7/27 and 7/28-8/10. When I find out what our pay is, I write it on the second line directly under the pay period. Then I fill in the variable columns of "tithe" "Mitch$" and finally "save"! Voila! There will be no hidden, "Whoops--forgot I needed to pay that." It's very liberating. And the best part is seeing your savings rise/debt decrease.

Another way to make life easier is autopay. CFCA, PITI, gas/elec, water, gasoline, internet, and cell are all auto pays. It comes out when it's due and not a day before.

This segment comes with many tasks. Ask if you've got any questions!! But that is how to get the most out of your paycheck. Once you've mastered your budget you'll be ready to expand your thinking beyond getting everything paid on time to thinking about how to increase your salary. Start a new career? Get additional training for a promotion? Move into passive income? (more on that later) It will open many doors.

Try it for 3 months starting with your next paycheck. I bet you'll be amazed at how much more money you seem to have.