Budget Busters, Envelope System - part 5

Budget Busters to Avoid:

1. Being overzealous and budgeting too little to cover the basics. I have fallen in this category too many times. I think (we can eat rice for 3 more meals so I can short change the grocery budget) and while I’m right, we are really unhappy about it. You have to cover the basics.
2. Overcomplicating the budget. I like to tell people that they need to KISS their budget. Keep It Simple, Stupid! There is absolutely no reason for a 17 page spreadsheet. The nerd of the family might think it’s cool, but it’s just going to annoy the freespirit and they are going to give up.
3. Depriving yourself of everything all at once. This is going to backfire big time. Sure, we can eat on $200 a month – NOW, but when we started we had to reduce our spending gradually. It took us 2 years to finally get rid of Netflix. So don’t over do it, ease in gradually.
4. Not planning ahead for monthly expenses. Remember my calendar? This is an excellent way to stay on top of things. Also, how many of you pay your car insurance quarterly or semi-annually? How many times does it feel like it just creeps out of nowhere? Make a plan now to cover those costs when they become due. Divide how much you need by the number of months you have until it’s due. That is the monthly payment. Don’t let these expenses creep up on you. Be ready for them by planning it out.
5. Not being on the same page. This is a very difficult area. I have had hundreds of women ask me this same question “How do I get my husband on board?” There isn’t a once size fits all approach, but I’m going to tell you how I did it. My husband and I had to sit down and begin discussing what we wanted in life. We had a list of things that we wanted, and so we had to discuss how we were going to get those things. We both knew that we wanted to not have to worry about money, but being debt free seemed like an impossible dream. So, I (being the nerd that I am) ran a bunch of numbers. I did a lot of scenarios and figured out that if we really kicked our behinds in gear, that we could be debt free in 5 years and have an emergency fund. After that 5 years, we could use $____ each month to have fun with, or save for big purchases. One thing we would like to have is a boat. We realize it is a distant dream - a very distant dream especially since our priorities have shifted majorly over the last 3 years, but it was something we wanted back then. So, we figured out that if we could be debt free and really cut back on everything, then it would only take us another 5 years to pay cash for a boat while living comfortably. That sounded great. Then we figured out that if we didn't get a boat, we could have a paid for house in like 10 years without all those debt payments. Then without a mortgage, we could do pretty much anything we wanted. Yes, those were high dreams and life doesn't always work out like that, but we got excited about trying for something. We got excited about being cheapskates and saving money - and we are still excited about it to this day. Priorities have shifted, but we still have those goals to be debt free and to enjoy life once we are.
6. Living without an emergency fund. There is no quicker way to bust a budget than to not have some money set aside for emergencies. They are going to happen. ER trips, auto repairs, home repairs, and hospital stays happen. Without an emergency fund to cover the expenses, you have no other option than to bust your budget by either adding a new expense that you financed (BOOO) or that you have to pay cash for.
7. Not sticking to it. We’re going to discuss some simple things you can do to stick to your budget in just a couple of minutes.
8. Overusing the debit card! How many times have you wanted to get $20 of gas, but got distracted and got $21.08? That’s $1.08 that wasn’t in your budget. How many times have you planned on spending $75 at the grocery store, but ended up paying $83 at the check-out counter? That’s $8.00 that wasn’t in your budget. Those dollars and cents here and there are budget busters – big time. What is the solution to that? Use cash! Yes, use cash for all your purchases. If you pay the gas station attendant $20, then you are only going to get $20 of gas. If you ONLY have $75 in your pocket, then you are only going to spend $75 for groceries. I guarantee that you will be under budget every time because you don’t want to look like a moron when you have to put things back at the register because you went over. When the money’s gone, it is gone. We do this and we call it The Envelope System

The Envelope System:

It is what it sounds like - a system of envelopes that you put cash in. Wow, isn't that profound? They do sell envelope systems where you get a bunch of nice, pretty envelopes in a little case thingie for like $20-30. I, am too cheap for that, so I got some dollar store envelopes and just wrote on the outside of them things like "groceries" and "gas." Too creative, huh?

You put money in these envelopes, so that all of your purchases will now be paid by using cash. Of course, you can still use your online bill pay, your debit card and checks to pay bills, but for purchases - things you buy - use cash.

The envelope system takes the fights out of how much money is needed for purchases. If you and your husband agree that you will have a grocery budget of $400, then you put $400 in that grocery envelope. When it’s gone, it’s gone, and you don’t get any more groceries until next month. If you head to the store and you forget the envelope, you’re going to have to turn around and go back and get it. There’s no gray area with envelopes. If it’s there, it’s there – if it’s not, it’s not.

What you do is go to the bank, withdraw how ever much cash you need to fund those envelopes until the next payday – in accordance with your budget, and then you put the money in the envelopes. I wouldn’t suggest keeping a big wad of cash on you at all times, but if you know you’re going to need gas, keep $30 on hand for gas.

No envelope system is the same – you will have different categories than we do, but here are some examples: Groceries, Gas, Clothing, Doctor Co-pays, Auto Maintenance, Entertainment, Christmas, Birthdays, Blow Money. Whatever you normally spend money on would have it's own happy little envelope. When you need to buy something, just pull the money out of that envelope, and you no longer have to worry if you can afford it.

Simple Ways to Stick to Your Budget:

1. Avoid Temptation: It sounds like a no-brainer, but it's the hardest one for people to actually do. We all like to go out. We like to look around at stuff – we’re conditioned to do so. That’s what gets so many people in trouble. Stay home or go somewhere that isn’t selling something. We have been taught to avoid temptations of all kinds, but yet we have no problems going to the mall on a Saturday afternoon and surround ourselves with things we want but can’t afford. Ummm….aren’t we being a bit stupid. We’re strong, but we aren’t invincible and sooner or later we’re going to give in to those “sale” tags.
2. Plan ahead: Create shopping lists, menus, meal plans - these things will help you stay on target with your spending. Plan ahead for birthdays, auto repairs, or other expenses.
3. Leave debit cards at home. Did you know that by using a debit card (or any other form of plastic) you end up spending 28% more on a purchase than you would if you use cash? There is no emotional connection to plastic, but there is to cash. We like cash, we like to have a wad of it, and we don't enjoy giving it to someone else.
4. Put your budget where you can see it. Our budget is hung up in our house. It is next to the calendar we look at daily. We see it. Out of sight, out of mind….and you don’t want the budget to be out of mind.
5. Get creative, find the joy in frugality and simplicity. There are so many ways you can cut corners, cut costs, save money, or even do things for free. When you have a budget, you experience a new found freedom. You are able to get creative, and saving money becomes a game to you, and you find the joy in living a frugal and simple life. When we first gave up cable TV, we thought we'd explode. Over time, we realized that we weren't missing a thing. In fact, we have already decided that we are probably never going to bother with paying for TV again because we've learned to find the joy in what we have.