I wasn’t into budgeting when I was still in the early stage of my working career. I used to spend a lot and most of the time, end up with an almost-empty wallet and have no choice but to just get Mang Bert’s lunch and pay it at the end of the month. I just learned to budget and monitor my expenses when my now-husband proposed to me. The need to save up for a wedding inspired me to revise our monthly spending plan. The wedding plan gave us the motivation to check our monthly expenses and eventually it became a habit of mine. It’s addicting once you get the hang of it.
Are you able to watch where your money goes? Or it just magically disappears in your wallet and ATM card?
Well, I guess you should start to know exactly where you spend your money. It will greatly improve your way of handling your finances.
I started budgeting using the envelope method. All it takes are just simple white envelopes, a pen, and some discipline, determination, and motivation.
1. Budget each paycheck. It doesn’t matter if it’s just your own paycheck or joint income with your partner, as long as you list down all your sources of income, and you must “budget down to the last dime” (Dave Ramsey)
2. List down all your monthly expenses. Categorize your cash expenses like Food, Gas, Utilities (i.e., water, electricity, internet, cable, etc.), Loans (i.e, credit cards, mortgages, car loans), other Personal Expenses and some Fun Money (of course, you still get to have fun). You have to remember where your money goes each month and how much is allocated for that specific item. You can write it down on a piece of paper or you can do an Excel spreadsheet.
What if you get a negative budget?
Well, maybe you have to check your spending habits. Cut down on the unnecessary things – if you eat out four times a week, maybe you can cut it down to two, or you can save on electricity and water so your bills will go down. Or if you pass by Starbucks every morning, maybe you can cut it to thrice or twice a week and just avail of your free office coffee. There are so many ways. You just have to learn to live below your means.
I have a high salary, should I still budget?
Of course! The more money you have, the more you will be tempted to buy on impulse. You just have to remember that whatever your salary is, your utilities and other obligations almost remain the same (unless your lifestyle upgrades with your salary). Higher salary should mean higher savings.
3. Get the envelopes. Label each one with the specific item in your budget list. Remember to add another envelope and label it as your SAVINGS envelope and please try your best to set aside a certain amount every month to fill that envelope first. Then your bills and other obligations, then lastly, your budget for your personal expenses.
If you do online payments for your bills, you may not need to label an envelope for that, just make sure you still include it in your budget spreadsheet.
For motivation purposes, you can use colored envelops or patterned envelopes to keep you inspired (this works for me)
4. If it’s empty, then don’t spend anymore. Once you see an empty envelope, it means that you have already spent your budget for that category. While your credit card is just hiding somewhere in your wallet, if you don’t use it wisely, it will cause you to over-spend and will hurt your next month’s budget. Don’t be tempted to get money from other envelopes either. That’s where you will practice discipline. You just have to wait for the next payday.
Also, you will develop the habit of paying your expenses in cash. It will prevent you from overspending and impulse-buying.
If you’re lucky, you might still have some cash left in any of your envelopes. What do you plan to do with it? Spend it, buy something nice for yourself? Or are you going to add it to your next budget or to your savings?
5. Practice makes perfect. I think the reason envelope budgeting works is because it makes your spending more tangible. We are more conscious of how much is left in our budget because we physically see it, unlike if all your cash is just one swipe away with your Debit card.
This envelope system maybe old-school to you but these system are proven effective in managing your paycheck. If you are not used to budgeting systems, it might be hard at first. Once you get the hang of it, you’ll be surprised at how beneficial budgeting systems can be for monitoring your expenses, starting your savings, and building your emergency fund.
