Over the years I have learned a lot about managing money.
The truth is that everyone has a budget. The difference between people comes
down to whether you manage/control your budget or whether your money is
controlled by “fate” and emergencies. Here is what to do to keep track of what
you have and to control your budget:
- List every expense you have.
- For at least one month list every penny you spend (so you can see where your money is really going. One Starbucks a day adds up!)
- Divide your expenses by categories:
a.
Tithes
b.
Housing (rent or mortgage, utilities, taxes,
“expected emergencies” [I will explain this later], insurance).
c.
Transportation (bus fees, gas for your car,
insurance), “expected emergencies”
d.
Food (both the meals you fix yourself and those
you plan to eat out, like work lunches)
e.
Clothes
f.
Medical, “expected emergencies.”
g.
Gifts (often forgotten in budgets.)
h.
Education
i.
Entertainment (babysitting, cable TV, Internet,
movies out, camping trips, etc)
j.
Debt
k.
Savings
l.
Etc.
4.
Figure out about how much you are spending per month in each category.
Figure out about how much you are spending per month in each category.
5.
List all your incomes (salary, babysitting money, stock dividends, matrimony, etc.)
List all your incomes (salary, babysitting money, stock dividends, matrimony, etc.)
6. Subtract you income taxes.
7. Decide right now how much you will spend from now on in each category. You may have to make some hard decisions. Remember; you final total can NOT be more than your income!
Also, be sure to leave about a 1% cushion for such things as using the air conditioner more one month than the next.
8.
Get out one envelope per category and label it for its category. Write the amount per month on the outside.
Get out one envelope per category and label it for its category. Write the amount per month on the outside.
9. Every month, get real cash when you deposit your check. Divide the money into the correct envelope.
10. Now, during the month when you want to spend money, you can take it out of the proper envelope. Cute blouse at Wal-mart? If the money is in the “clothes” envelope, no problem! If the envelope is empty, you have to wait until next month.
Of course, no one uses real money any more. Maybe that is why so many are in financial trouble! It is hard to budget “imaginary” numbers, like checking accounts.
But you have to anyway. A variation on the envelope method would be to have one sheet of paper per category in your organizer, add the amount of money allotted to that category at the beginning of the month, and subtract every time you spend from that category.
You MUST discipline yourself to not spend money if the balance in that category is 0 even if you still have money in your account.
Now, if you have nothing left in you “coffee” account, but you do have money in your “clothes” account, you can take money out of “clothes” and spend it on coffee. Just be aware you are shorting yourself on clothes. NEVER take money out of an “essential” account (mortgage, gas, utilities, etc) for something less important (clothes, eating out, entertainment, etc).
Most people can do a hybrid. Pay everything possible through the internet (mortgage, utilities, etc) and take cash for the rest.
Others have designated bank accounts for each major division.
- All income goes into the "General fund" which pays the mortgage and utilities.
- The money for those things Hubby is responsible for (say, car maintenance, his lunches and clothes, and medical expenses) is transfered to his own account.
- The money for those things Wifey is responsible for (say, groceries, her clothes and lunches, and school expenses) is transfered to her own account.
- Savings, allowances, and "extra" or "cushion" money goes into their own accounts (there are many sources now on the internet that supply "accounts" or prepaid credit cards for free. Check out Akimbocard.com and Bluebird.com for example.)
[An “expected emergency” is something that only happens
occasionally, is usually viewed as an emergency when it happens, but, really,
if you had thought about it, you would have known it would eventually happen.
Example: Your washing machine WILL break down eventually. I have known of them living for 25 years, but they DO eventually die.
Your car must have new tires occasionally.
Christmas DOES get here. Etc.
The wise way to handle these expenses is to save a small amount of money each month to pay them when they come up. For example, if the average new appliance will cost about $700, if you save $50 per month in a special “appliance” envelope, it will only take you 14 months to have enough money to go down and buy a new appliance with cash- NO DEBT!
Figure out “expected emergency” expenses in every category, save a small amount of money each month toward each one, and never have to use a credit card again.
Example: Your washing machine WILL break down eventually. I have known of them living for 25 years, but they DO eventually die.
Your car must have new tires occasionally.
Christmas DOES get here. Etc.
The wise way to handle these expenses is to save a small amount of money each month to pay them when they come up. For example, if the average new appliance will cost about $700, if you save $50 per month in a special “appliance” envelope, it will only take you 14 months to have enough money to go down and buy a new appliance with cash- NO DEBT!
Figure out “expected emergency” expenses in every category, save a small amount of money each month toward each one, and never have to use a credit card again.
A slightly different expense is regular annuals such as car insurance. For these, simply divide the final bill by 12 and save that amount every month (or if you get paid weekly, divide by 52 and put aside a little every week).
We should also figure house improvements and car replacements.
Add all these “emergencies” together and you can figure how much you need in savings to cover them.)
Pay tithes first with every pay check.
Then pay yourself (savings). Then your “essential” expenses and debts. Then you can divide the rest of your money between the other categories.
To get out of debt:
1.
Make a list of every debt you owe, no matter how
small. Include the balance, interest, minimum payment, and how long it will
take you (at minimum payment) to pay that debt off.
2.
Order that list with the debt you can pay off the fastest at the top.
Order that list with the debt you can pay off the fastest at the top.
3.
Make minimum payments to all your debts except that top one. You want to put something extra on it, even $10 a month.
Make minimum payments to all your debts except that top one. You want to put something extra on it, even $10 a month.
4.
Decide how you will spend any “windfalls,” (unexpected money like birthday gifts, investment payouts, or someone paying back money they owe you), right now, long before you get them. The best advice is to divide it into fourths. ¼ goes to God as a “Thank You” gift. ¼ goes into savings. ¼ goes on that top debt. ¼ you take out and blow (have fun!)
Decide how you will spend any “windfalls,” (unexpected money like birthday gifts, investment payouts, or someone paying back money they owe you), right now, long before you get them. The best advice is to divide it into fourths. ¼ goes to God as a “Thank You” gift. ¼ goes into savings. ¼ goes on that top debt. ¼ you take out and blow (have fun!)
5.
When you pay the top debt off, you take the money you WERE paying to it every month and add it to your payment for the second-top debt.
Example: If you owe two credit cards with minimum payments of $20 per month, you send $30 to the lowest balance and $20 to the second every month. When the first is paid off, you send $50 (the first $30 +the second $20) to the second one every month.
In this way your payments will snowball, you will get excited to see the debt coming down ever faster, and you will get out of debt much faster than with any other plan. Stick to it and you can pay your mortgage off early!
When you pay the top debt off, you take the money you WERE paying to it every month and add it to your payment for the second-top debt.
Example: If you owe two credit cards with minimum payments of $20 per month, you send $30 to the lowest balance and $20 to the second every month. When the first is paid off, you send $50 (the first $30 +the second $20) to the second one every month.
In this way your payments will snowball, you will get excited to see the debt coming down ever faster, and you will get out of debt much faster than with any other plan. Stick to it and you can pay your mortgage off early!
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