In this tough economy, one of the best things you can do is setup a budget and stick to it. Make a complete list on paper of all of your expenses you encounter over a month. Put them in categories such as Food, Groceries, Clothing and Entertainment. Separate the items that you can pay cash for and those that you need to write a check for (utility bills, house payment etc.)
Now comes the fun part. Grab some business sized envelopes and a sharpie marker. On the front of the envelopes, write down the major category titles that you can pay with cash.
For this post example, I kept it simple. I created an envelope for Groceries, Clothing, Entertainment, and a catch all Weekly Expense envelope for myself and my spouse. Each week on Saturday, I would make one trip to the bank and withdraw the budgeted amount of cash and fill the envelopes.
Here is an example of how it works. I’ve listed some simple to follow amounts for this illustration. Your amounts will probably be different depending on your household situation.
Example Weekly Budget Envelope
|Groceries||Family||Weekly||$100 ($400 mo)|
|Weekly-Spouse1||Personal||Weekly||$100 ($400 mo)|
|Weekly-Spouse2||Personal||Weekly||$100 ($400 mo)|
Researchers have found that people spend an average of 40% more when using credit cards than paying with cash. When you have a limited amount of money to spend and you pay in cash you’ll be amazed how much more discerning you will become.
- When you go to the supermarket with a weekly budget envelope, you’ll be more apt to use coupons, buy store brands, and buy things that are on sale. You’ll probably be asking yourself… do we really need this over and over?
- In the entertainment category, renting a DVD may save a lot of money over going to the theatre. Going out to a nice fast food place can save a lot over going to a full scale restaurant. An entertainment bookcan save you even more.
- Instead of heading for the shopping mall, the much cheaper outlet mall or discount department store may be the place to save you lots of money. When you are looking at a fixed amount of cash in your envelope, you may spend the extra time to look through the sale racks.
The following is an example of the savings you may be able to accumulate in a month by using cash instead of credit cards. Even a 10% reduction can add up.
Monthly Savings by Using Cash
|Monthly Budget||Percent Savings||Total Saved|
Put the savings to work.
At the end of the month, collect all your savings from the envelopes and put them to good use. Here are three ways to maximize your savings.
- If you currently carry a balance on your credit card, use this money to pay down your balance. Most cards have an interest rate over 20%, so by paying this down it’s like getting 20% interest on your money.
- Start a savings account. Most economists say that we all need at least 3 to 6 months income set aside for emergencies. If you don’t already have a “rainy day” fund, use this money to start one.
- If your credit cards are paid off and your rainy day fund is in place, use this money to start investing for your future. You can open a low cost Share Builder account to purchase stocks, bonds, and mutual funds, or you may want to start saving for a down payment on a house. You’ll be surprised how quickly the money adds up.
Using the envelope system is easy and fun. You’ll probably find yourself making a game out of it, and one thing you’ll soon discover is that you will not miss all the impulsive junk you would have bought using a credit card.
To make this a little easier and to keep track of your results, you can print out some Budget Success Cards to keep in each envelope. This lets you keep track of each purchase and show a running balance.
Just download the Budget Success Template and open it in Microsoft Word. Fill in the column headings for your budget categories and print the sheet out on heavyweight paper (light colored construction paper works well). Take a pair of scissors and divide the sheet up in thirds. Each sheet makes three cards.
Why not set a goal and try this for a month. You can easily set the envelopes up in five minutes and be on your way to a more secure and financially rewarding future.
A great reference book for setting up a household budget, is Dave Ramsey’s, Total Money Makeover. This book can help you become debt free using solutions like the envelope system. Highly recommended.
Question: What items would you budget in a weekly budget envelope?