In this day and age everyone is talking about budgets. I hear the chatter everywhere I go, “Do you have one”, “I’m going to start one”, “what’s the best one”, “I can never follow one” and on and on. What I’ve found is that people genuinely want to find a budget that works for them and their family and stick with it. Sounds pretty easy, right?
This first time beginner’s budget system was passed onto me by my mother, shortly after I moved out on my own more than twenty years ago. She called it the “Envelope system”. Whether or not is has an official name, I couldn’t tell you. The system is fantastic when you can’t afford one of those expensive accounting ledgers or an accountant or financial planner to walk you through the baby steps of getting it all together.
Start by taking a clean sheet of paper and dividing it into 3 equal columns. At the top of each column, write the following:
- Monthly Expenses
- Yearly Expenses
- Income Sources- This amount is your total monthly income from all sources. Write each source down, add them up and then divide them by 4.Next, under each column list all the expenses that you have. For instance, It may look something like This:Monthly Expenses ÷ 4Yearly Expenses ÷ 52 weeksMonthly Income Total
Rent $400 ÷ 4 = $100. week
Phone $60 ÷ 4 = $15. week
Utilities $100 ÷4 = $25. week
Groceries $200 ÷ 4 =$50 wk
Renters Ins. $350÷ 52 = $6.75 wk
Car Ins. $1200 ÷ 52 = $24. weekMy Paycheck for the Month = $1200.
Take your monthly income and divide by 4.This is how much you have to put towards each weeks bills.
Total Weekly Amount $190. Total Weekly Amount $30.75 Total Wkly Amt $300.
Once you have completed you list of expenses and income, add your Total Weekly amounts together, in this sample the total weekly expense amount would be $220.75.
The total income for 1 week is $300, thereby creating a surplus of $79.25 which can be used to pay back debts, or savings accounts, IRA’s etc. Be sure to pay yourself an “allowance” each week. Sometimes it’s as little as $10 but this necessary expense helps reward your work and keep you on track.
Take an Envelope for each Expense and write the name of the expense across it, along with the weekly dollar amount needed to pay that particular bill. For instance, in this case you would have 6 envelopes labeled Rent $100 week, Phone $15 weekly, Utilities $25 weekly, Renter’s Insurance, Car insurance, etc.
At the end of each week, cash your paycheck and “Pay” each envelope the amount needed to pay the bill. If your bill comes in slightly less one month, leave that dollar amount as a cushion for another month. On another note, if you suddenly discover that your monthly income is less than your expenses, it’s time to take a look at your expenditures, nipping and tucking where necessary.
If you have struggled in the past, paid your bills with credit cards, only to sink further into debt, then this basic budget plan is a step in the right direction. Oftentimes people can manage a monthly budget until a yearly expense creeps up on them, such as property taxes or Homeowners insurance, only to send them in a whirlwind, robbing Peter to pay Paul.
This method of budgeting helps prevent that panic.
©1998 Melissa ‘Liss’ Burnell – Creator & Designer of Budget101.com, “Digging yourself out of debt when all you have is a spoon”
© Can Stock Photo Inc. / lobzik