Three Alternatives to a Budget

the envelope system: day one

Image by J. McPherskesen via Flickr

Budgets aren’t for everyone.  For some people, the very idea of trying to track where their money going is painful.  And that’s just the idea of tracking the money.  It gets far worse when you’ve got $10 budgeted for coffee, $12 for fast food, $66.50 for gas, and $0.75 for entertainment.  It’s can be hard to follow a strict budget for long.

If you know you need to track your money, and you also know that a strict, zero-based budget won’t work for you, what can you do?  Luckily, there are alternatives.

1. Hope and Pray. This is otherwise known as the “Call my bank everyday and see how close I am to over-drafting” system.  To fully embrace this system, you need to not only abandon a written–or even organized–budget, but you should also throw your checkbook register in the garbage.   Make sure you’ve got a good overdraft protection account attached to your checking account and let your money take care of itself.  This is the ultimate zen of personal finance.  Don’t stress or worry, just hope for the best.   This system works best if you make more money than Oprah and have modest tastes.  For those of us who have to watch our money a bit to make sure the month outlasts our money, this probably isn’t a great plan.

2. The Envelope System. To implement this system, you do need to create a basic budget so know what you are obligated to pay.  Once you have that done, take a stack of envelopes and label them for each item you have to pay.   Add another envelope for food, another for entertainment, and another for miscellaneous because there is always a miscellaneous.   Divide the money among the envelopes.   Now for the magic. When you have to spend something, take the money out of the appropriate envelope and spend it.  That’s it.  If, however, there isn’t enough money in the right envelope, but you still need to spend the money, you have to take it out of a different envelope and spend less on the category that lost money.

3.  Percentages. This is the simplest of the non-budget budgets.   Take 50% of your money and spend it on necessities, like the mortgage, food,  and utilities.   The next 30% goes to savings and retirement.  The last 20% is for fun or any other thing you want to spend it on.  This naturally works best if you are out of debt, but if not, just make sure most of the 20% fun money goes to repaying debt.   This system works best if your bills are automated and you will need to set up a basic budget first, so you can make sure your necessities come in under 50% of your income.

Not every budget plan will work for everyone, but there are always alternatives that can still help you manage your money.

How do you track your money?

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    1. I’m kinda old fashioned. Each month, I budget how much money I’d like to spend, based on my needs/wants, in each category and then track my progress using a personal finance management software. I find the envelope system the most difficult method to implement. I really like to know where my money is going. And the probability of me writing these things down are practically zero. Plus, I’m terrified of losing my cash.


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