Budgeting Basics 4: Staying the Course
by Matthew Pryor
August 5, 2004
(AgapePress) - In this recent series of articles, we've looked at the basics of budgeting. Starting with why you need to budget, we moved on to tracking your spending and setting up category limits. The final piece of the puzzle is how to stay the course; that is, how to specifically implement your budget. Here's an overview of some basic methods used to stay on budget.Method 1: Envelope System
This is the most basic, and arguably the best way to stay on budget for beginners. As the name implies, you will track your spending by taking from and depositing into regular mailing envelopes. At the beginning of the month, withdraw from your savings the appropriate amount of cash to cover all the predetermined expenses which you plan to pay in cash (or withdraw half the amount now and half in the middle of the month). This spending typically covers expenses from the categories that don't lend themselves as well to being paid by check or an automatic withdrawal (food, clothes, entertainment). Categories like mortgage, car payments, and insurance would not be included.
Take the cash and divide it into individual category envelopes according to the limits set up in your budget. If your entertainment budget is allotted $200 a month, then $200 dollars cash goes into the entertainment envelope. Any time you need to pay for something entertainment related, withdraw the appropriate amount of cash from that envelope and write down where/what you spent it on. When the envelope is empty, no more nights out until it's time for your next monthly (or bi-monthly) withdrawal.
This system makes it tempting to "rob Peter to pay Paul." I would caution against borrowing from other envelopes unless it is an emergency (that is, you have no food and your next savings withdrawal is nine days away).
- Pros: Easy; less likely to overspend.
- Cons: Inconvenience of having to carry the envelopes with you nearly all the time; spending details not as organized as probably desired.
Method 2: Computer Spreadsheet
While not essential to effective budgeting, computers can provide just the sort of organization that we type "A" personalities need. Keeping a record of your spending in a spreadsheet like Excel or Lotus can help you stay on top of how much is being spent in each category without some of the drawbacks of the cash-based envelope system. Simply set up your categories and their appropriate limits, and whenever you spend money, record it in the appropriate column.
- Pros: Organizes spending details; doesn't take much time to set up.
- Cons: Possible difficulty setting up spreadsheet; necessitates keeping all your receipts; time commitment; gets tricky when lump sum payments (like credit cards) cover multiple categories.
Method 3: Money Management Program
While not as easy as the envelope system, programs like Microsoft Money and Quicken are pretty intuitive. After setting up budget categories and limits, each time you record a transaction there's a place to designate what category (or categories) it belongs in. Whenever you go over your budget limit, the program warns you. You can set up bill and deposit reminders and even cash-flow scenarios to help you target debt. Plus, if your bank offers Internet banking, reconciling your account is simply a matter of downloading your transactions and accepting the program's transaction pairing. My favorite thing about these programs is being able to run reports to see exactly how much went to each budget category, subcategory, or specific payees.
- Pros: Precise and extensive bookkeeping options; easy reconciling; automated warnings/reminders.
- Cons: Upfront cost in dollars and setup time; higher learning curve; ongoing time commitment.
Method 4: Combination Method
This combines elements from the prior systems. Perhaps you only spend with cash from the envelopes, but you journal it in a spreadsheet. Or, like we do in our home, you might use a debit card combined with money management software. This gives us the best of all worlds: [1] the accountability of using cash because if we don't have the money, we can't spend it (unlike credit cards); [2] the flexibility of credit cards; and [3] the bookkeeping benefits that money management programs offer. The only real drawback is the time commitment (10-45 minutes a week), though most of that time is made up by being able to balance the checkbook in two minutes flat.
- Pros: Tailor-made for your needs and preferences.
- Cons: Depends on your method.
There is no right or wrong way to implement your budget. A computer is not necessary, nor is always having cash on hand. You need to find a system that works for you. It's like trying to lose weight: If you've eaten cereal every morning for the past 27 years, you aren't likely to stick to a low-carbohydrate diet. You may, however, stick to a program of moderate exercise and low-fat foods.
Hopefully you feel more equipped to undertake the budgeting process as a result of this series of articles. My parting advice: Give yourself some time to get use to it. Don't give up. If you get discouraged, pray. And remember, the point of budgeting is to better manage the resources God has entrusted to you, hopefully freeing up money for His kingdom and propelling you towards fulfilling His purposes in you and for you.
- Pros: To hear Him say, "Well done, good and faithful servant."
- Cons: None.
Return to Part 1 of this series
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