Sunday, May 12, 2013

The Art Of Budgeting – The Envelope Method

The art of budgeting is necessary for everyone running a household
Old beliefs say that women know how to budget more than men. I would say that this is rubbish. The art of successful budgeting does not depend on sex but largely depends on your discipline to hold on to your cash. 

Just like anyone else, I used to find it difficult to budget my salary. Whenever I get cash on my hands, my mind automatically runs on auto-pilot telling me to buy the things that I want rather on the things that I need. As soon as I realize what I am doing, it is too late for me to put a stop on it. Guilty, I reprimand myself and vowed to do it again during the next month but then this cycle happens again the next payday.

In the attempt to budget my money, I turned to a lot of budgeting ruse which include putting my money inside a compartment in my wallet and not touching it until I needed them to pay something off. I also did the same thing but I left them in the bank only withdrawing what I need. But these didn’t work out for me and by the end of the month, I still had the same problems.

I realized soon that my problem is not my discipline to budget but my strategy. Having a budget strategy is very important in order to organize your cash flow. The most effective strategy  that I have adapted so far in order to budget my expenses is to use the envelope method. As the name implies, you religiously set aside a particular amount every payday and put it inside a marked envelope.  It does not necessarily mean that you have to use envelopes and there are a lot of variations for this method. You can use jars or any container whichever suits your needs. In my case, I got  nifty cassette tape cases to hold my cash.  Here’s how to do the envelope method.

List down all monthly expenses. There are two types of expenses and these include fixed and variable expenses. Categorizing your budget allows you to see whether you are spending too much on a particular expense or not. On the other hand, it will also be advantageous to have a foresight on the possible expenses that you will have within a month thus it is also important to set aside something for your emergency fund.

  • Fixed expenses are those that have values that stay the same every month and are essential for your survival. These include utility bills, home owners’ fees and mortgage or rent payments to name a few.
  • Variable expenses relate to those that have values that change all the time which include groceries, entertainment fund and travel expenses.
Allocate the necessary amount every payday. If you have already listed down all of your monthly expenses, make an estimate on how much you need to spend for every expense category that you make.

Label your envelopes. Get a permanent marker and label  your envelope with the expense category and the allocated amount that you need to set aside every payday. Spend only what is inside your envelope appropriately  and do not forget to put in whatever change left after spending. The amounts that will be accumulated with serve as a reserve fund for next month. If you have accumulated funds, you can use it to adjust your budget or put it in your savings or emergency fund.

I find this method very effective as it allows me to track my expenses and make sure that I do not go way beyond my budget. I do not know if this method will work for you but for me, it definitely did. 

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