A friend of mine came up with this simple budgeting scheme and I just had to share. It is a perfectly easy way to plan your expenditures each month and ensure you stick to them. I call it an Envelopes Budget.
The process is simple. Start by tracking your expenses each month to get an idea of where your money is going (this is good to do anyway!) Once you have a basic plan, put a budget into place. Start by creating large categories for each expense and an appropriate budget amount, examples would be:
*Groceries
*Entertainment
*Utilities
*Gas
*Rent or Mortgage
*Eating Out
*Gifts
*Doctor
*Pets
*Hobby
*Clothes
*Insurance
*Savings
Gather your envelopes and label each one with one of these categories. Then, each month or payday, distribute your income into each of these envelopes. For some, like groceries or entertainment, actually place cash into each envelope. When the cash is gone, you are done for that month. For some of the others, you can instead write a check to hold the funds. It is also a great way to sort your bills – simply include them in each envelope.
The key to this system is through the sorting of money, knowing where you are spending it each month. Then, helping you to spread that money out – as you watch it slowly disappear…
A good example of how this process functions is with your grocery envelope. Whether you are paid weekly or monthly, you determine what your basic grocery bill should be for the month. Let’s say it is $100 a week. So for a monthly paycheck, you would place $400 in the envelope on payday and for a weekly paycheck you would place the $100. By using cash, you can simply remove it from the envelope on shopping day – with a clear understanding of how much you have to spend. Then when the envelope is empty, you know you have to wait until next payday to buy more food.
Of course, I don’t suggest you starve! But, what I do hope you will discover is how to be selective about your purchases and also learn to live with the foods currently in the cupboard. If you see the money in the envelope is getting low and there are still a couple of weeks until payday, it will put you in a more conservative mindset. This is a great attitude to pack with you in your wallet!
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Getting out of Debt and Living within a Budget