Typical Budgeting is Flawed

The Envelope system is a way to track your variable expenses like food, entertainment, and drinks.

This method, preferably used weekly, allocates a certain amount in each category in labeled envelopes (food, drinks, movies, etc.). Once the envelope is empty, you are done spending in that category.

The principles that make a good budget, something you can stick to:

• Being Realistic: Being too strict is a recipe for failure.
• Making Adjustments: A budget is not set in stone, but a fluid thing.
• A Team Sport: If you live with a partner or spouse, you have to agree mutually on how to budget the financials.
• Expect the Unexpected: Keep an emergency fund, ideally 3-6 months of necessary expenses.
• Budgeting the Expected: Certain upcoming expenses need to be budgeted in advance, like property tax, holiday shopping, etc.

Debt payments may look confusing when you add it to the savings column. But the easiest way to build up a savings balance is not to have your money go toward debt. Once your debt is paid off, you can increase the savings.

Play around with your monthly budget to see where you can reduce your monthly spending:

• You could contact your internet company to get a discount.
• You can clip coupons and use rebate apps to spend less on your monthly groceries.
• You could set aside less for medical expenses if you have an emergency fund.

This becomes a problem when you’re spending for a life you can’t afford. It puts pressure on your budget and encourages you to live in a paycheck to paycheck cycle.

Assess your financial situation, cut back on your expenses, prioritize your money goals, and then come up with a new spending plan.

It’s hard to stick to a budget that doesn’t have a goal.

When there isn’t one, your budget becomes an afterthought rather than a spending plan to reach your financial goals.

1. Gather every financial statement you can (bank statements, investment accounts, recent utility bills).
2. Record all of your sources of income.
3. Create a list of monthly expenses.
4. Break expenses into 2 categories: fixed and variable.
5. Total your monthly income and monthly expenses.
6. Make adjustments to expenses: If you have accurately identified and listed all of your expenses, the ultimate goal would be to have your income and expense columns to be equal.

Write it down when you’ve gone over your budget. The negativity you feel will help prevent you from overspending more or doing it again. Just think of this step as damage control.

If you try to deprive yourself too much, you’ll binge later and throw all your hard work out the window. 

A spending binge can set you back far more than treating yourself occasionally, so go for the occasional minor splurge. Just keep your treats within your spending limits and you’ll be fine.

1. Determine how much you make on any given month.
2. List your bills: Once you determine how much money you'll make this month,  figure out how much money you need to spend next month.
3. Compare and contrast:  Once you see your monthly income and your monthly bills on paper, a clear picture of how much money is left over emerges.
4. Spend all of your money on paper: decide where that money will serve you best.
5. Track your spending.
6.  Make adjustments to get it right.

1. Gather Some Financial Information: gather a detailed list of your income and expenses.
2. Select a Budgeting Method: figure out how you’ll budget your money to meet your most pressing financial goals.
3. Create Your Budget: tally up all your expenses and income to see where you stand and allocate expenses.
4. Execute Your Plan: you can use a notebook, pen and paper, a spreadsheet or an online software.
5. Reward Yourself: you can work a small percentage into your budget to treat yourself each month.

This method suggests that you allocate 70 percent of your income to expenses, 20 percent to savings, and the remaining 10 percent to debt.

70:20:10 may work for someone with a healthy emergency fund and minimal debt.

Get to working on improving your finances today, not tomorrow. Reading the steps and thinking you’re capable of doing it but postponing it is just an excuse, an unprofitable one.

Talking about your financial goals, and scheduling time once a month to go over your finances together can prevent money from affecting your relationship.

A consumer spends money and follows trends while an investor puts capital to work and takes advantage of trends.

Chronic consumers often go broke, and persistent investors often get rich.

• You feel the need to reward yourself after a hard day of work by buying new clothes/accessories or eating out.
• Lifestyle creep controls your expenses. When your income increases, you buy a new car or a more expensive house.
• You reserve your credit card for unexpected expenses instead of using an emergency fund.
• You rationalize using a credit card to buy things you might not purchase with a debit card.
• When something is on sale, you feel the urge to buy it, even if you wouldn't have otherwise bought it.
• You follow social trends.
• You don't think you have money to invest or the time for it.