Monday, January 3, 2011

Budget, Budget, Budget

With the new year comes a new list of resolutions. One of our resolutions is to quit spending so much darn money! So, how are we planning on doing that? The Envelope System.

The Envelope System, as outlined by Dave Ramsey (Financial Guru) is as follows:

1.Budget each paycheck. Budget is a dirty word to most people, but you must budget down to the last dime if you're going to successfully implement the envelope system.

2.Divide and conquer. Of course, there will be budget items that you cannot include in your envelope system, like bills paid by check or automatic withdraw. However, you can create categories like food, gas, clothing and entertainment.

3.Fill 'er Up. After you've categorized your cash expenses, fill each envelope with the money allotted for it in your budget. For example, if you allow $100 for clothing, put $100 in cash in your clothing envelope for the month.

4.When it's gone, it's gone. Once you've spent all the money in a given envelope, you're done spending for that category. If you go on a shopping spree and spend the $100 in your clothing envelope, you can't spend any more on clothes until you budget for that category again. That means no visits to the ATM to withdraw more money!

5.Don't be tempted. While debit cards can't get you directly into debt, if used carelessly, they can cause you to over-spend. There's something psychological about spending cash that hurts more than swiping a piece of plastic. If spending cash whenever possible can become a habit, you'll be less likely to over-spend or buy on impulse.

6.Give it time. It will take a few months to perfect your envelope system. Don't give up after a month or two if it's not clicking. You'll get the hang of it and see how beneficial the envelope system is as you dump debt, build wealth, and achieve financial peace! See ... simple!

We implemented the system 4 days ago and so far we're doing prety good with it. I'm a bit worried that we may have underestimated our food budget. The system has really made us concious of our spending and it's stopped me from throwing unneeded things into my cart.

1 comment:

Elissa said...

Jenn,
I found your blogs via Rachel Stork-Stoltz, and I love them! I too want to starting cooking better for my husband and myself, which can be a challenge in the middle of Chicago suburbia. ANYWAY, I wanted to comment that we have used the envelope system to a year now, and I love doing it. I even bought his envelope-binder-holder thingy that fits in my purse (rather than carting 10 different envelopes around everywhere). We have saved SO much in the past year just from being smarter with our grocery budget. What a great decision!

 
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