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A comprehensive guide to make budgeting as simple and stress free as possible!
Who needs a budget? EVERYONE needs a budget. Everyone should budget! If you do not give every dollar a name, it quickly disappears.
I spoke with a financial advisor who told me some of her clients were people who were running out of money in retirement because they had never learned to designate each dollar they earned when they were making a disposable income.
Quick note: If you are beginning to budget for the very first time, I recommend that you first work with the paper envelope system until you get the “feel” of working with one down pat. There is nothing quite like feeling the money flow in and out when you use cold hard cash, or hit empty in the envelope. However, we have found a streamlined way to budget online that works very well for our personalities.
First, create a budget
Now if you’ve never budgeted before, it may look daunting. However setting up a budget is easier than it first appears, and I will help you step by step.
To help keep it simple, our favorite online tool is Every Dollar. It is easy to work with, it’s free (who doesn’t love free?) and the pie graph on the side helps with a visual and percentages. The paid version allows you to sync with your bank accounts.
If you are an excel geek, you can definitely create your own template. Google docs also has an endless supply to choose from and that is where we found our first template.
Start with your fixed expenses and then work with your variable expenses.
First you enter in your monthly income, then itemize out each of your monthly fixed expenses.
Next, categorize all the other areas you can think of at the time. Things that are necessary, and things you would like to budget for. You can always add to those envelopes later. After we paid off our debt we had great delight filling the “fun” envelopes.
Fixed expenses could include
- Mortgage or Rent
- Internet and Phone
Variable expense examples are
- Date night
- Personal Care
- Cleaning supplies
Almost everything we budget for on a monthly basis became a fixed expense once we got the initial bugs worked out. Unfortunately, bugs don’t always stay worked out. Life ebbs and flows and things change. Adapt your budget to your life needs!
Next, zero out your budget
Give every dollar a name, even if it is just two dollars per month going toward something! We have a “variable/recurring expenses” account for things like diapers, water filters and laundry soap since our usage for those things can change and we don’t want to be left in the lurch. I can guarantee you, something will always come up that you had not thought to budget for. Having an account like this can save your butt!
Now we are ready to streamline things!
Create Online Envelopes
Take a deep breath. This next part may get a little frustrating and is a lot of work initially. But budgeting after this point is virtually painless, so bear with me.
Go to your bank and open sub savings accounts under your checking for each of those expenses you listed out previously. Go ahead and make it fun with the names. One dude I read about used songs from the Beatles for his virtual envelopes. We have an account (envelope) for every expense that we budget for. For instance:
- Date Night
Our paycheck goes into our main checking, but then auto transfers occur into each of the sub savings accounts. It is from those accounts bills are then paid. This guarantees that the money for your bills will always be in the right place at the right time, and you will never have a late payment.
Most companies have no qualms about withdrawing from a savings account, but in the event that is not an option, we also have a second checking for bills, and the auto transfers go into there for those and will not accidentally get used up by being left in main checking.
This is also a great account to have for ordering items online. Let’s say I need a dress from Amazon. I find out my total cost and then transfer from “clothing savings” to “bill pay checking” and the money sits there untouched until Amazon drafts it out.
Get paid twice a month? Set up two mini transfers for the amount needed, just be sure that the money is there by the due date. To do this, you may need to fund those accounts before the next paycheck so that the correct amount of money that is due is already there.
Allow me to summarize
For example: your electricity bill is $100 and due on the 30th of the month. Suppose you are paid bi-weekly. You set up a auto transfer for $50 two times a month, starting the day after your paycheck is deposited. You give the electric company the account number and your bank’s routing number and the bill is automatically drafted out on the 30th from that savings account. Your bill was paid on time, and the correct amount of money was in the account when needed.
There you have it!
I am all about keeping things nimble, and this method has greatly reduced tension in the home in the area of finances. It is efficient and also a great way to have documented information for how we are spending and saving each dollar.
I would love to hear from you if you have implemented this strategy for an online envelope system and how it worked out for you! What tips do you have for budgeting?