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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?

How Much Should You Tip?

Finance

: Image by cemre via Flickr

This post from CNN Money has been making the rounds. I’m getting into the game today.

With the holiday season upon us, tipping the people you work with is a tradition in some cases and actually expected in others. Here’s what CNN came up with and my take:

Housekeeper. We don’t have one. I’d think $75-100 would make a nice tip/Christmas bonus. I seem to be more generous than average with my imaginary maid. Maybe that’s because of the outfits she wears.
Gardener. Once again, we don’t have one. Even if we did, I live in Minnesota and have close to a foot of snow over the patch of weeds I call my garden. If I did have a gardener, I wouldn’t have seen him for a few months by now, anyway. $0!
Mail carrier. I’ve only met my mail man a dozen times and I’ve never considered giving him a Christmas present. Do people really do that?
Barber. I don’t have one any more. My wife has started doing my hair for me. When I did, I tipped about 25%, but again, I wouldn’t think about a Christmas present. I only saw him quarterly. I don’t think my wife has a regular stylist either. She’s just got a shop she goes to and gets whoever is available. Is there holiday tipping protocol for that?
Garbage collector. No way. Really? I don’t know that I’ve seen the same guy twice. Am I supposed to give a present to the anonymous, interchangeable union guy that drives past my house every Friday?
Newspaper carrier. One night, twelve years ago, while my wife was still working graveyard shifts, she had a hard time sleeping on her nights off. That’s natural for 3rd shift workers. At about 4AM, she was watching TV and saw someone run past the window. Scared, she came to wake me up. I handed her the phone to call the police, while I grabbed the only thing I had for self-defense and went to investigate. I ran out on the front step–in my boxers, carrying a sword–and saw someone lurking in the neighbor’s yard across the street. I yelled, “Y0u don’t belong here!” only to hear “I’m delivering the paper!” That’s when I start tipping the newspaper carrier. I stopped when we canceled our subscription a few years later. Who needs a dead tree in the morning, when there are a million news sites on the internet?

If the majority of people are giving Christmas bonuses to that many people, and are as generous as the article suggests, then I fall far to the loutish end of the bell curve. I am planning to give my virtual assistant 1/12 of the pay he’s earned this year, so that should make up for some of it, but that is an ongoing business relationship.

How do you compare when it comes to holiday tipping?

Money-Saving Tip: Put Your Groceries Away

Finance

23 Hour Smoked Boston Butt — Image by bbum via Flickr

Last night, we went grocery shopping. I found a beautiful pork roast, just begging to come home with me. It could spend all day Sunday in the smoker. Rub some brown sugar and garlic on the outside, maybe use a mix of maple and cherry wood chips to turn my pork butt into breakfast food. Picture this: a beautiful chunk of slow-cooked pork butt, covered in a candied crust, falling apart at the lightest touch, and tasting faintly of maple syrup.

It was love.

This morning, I woke up, walked into the kitchen to make some breakfast, and saw that beautiful butt sitting on the counter. Room temperature meat, ruined by my negligence. $15 in the trash.

We got back late last night, and apparently set this wonderful piece of future-food down with the non-refrigerated items were were planning to put away later. We said good-bye to the sitter, chased the kids to bed, picked up the house a bit, and forgot about my new love.

I’m sad.

Here’s my advice: When you get home from grocery shopping, immediately put all of the groceries away. Let the kids juggle knives for a bit, if you have to, but get the food put away. If that’s not going to work, at least take it all out of the shopping bags so you can check your work.

There are starving kids in Iowa. Don’t let potential candied pork roast go to waste.

Make a Budget

Finance

: Image by r.lovewell via Flickr

In the past, I’ve gone through a detailed series of budget lessons demonstrating how to make a budget and showing my personal budget spreadsheet template. If you weren’t here to see them develop, you probably haven’t seen them at all. I’ve never built an actual index for those posts.

This is the master index of my budget planning resources. As I develop more, this will grow.

Budget Lesson #1 – In this lesson, I go over how we handle discretionary income and I explain our modified envelope system. The discretionary budget contains things like our grocery bill, or the clothes we buy. We have near-total discretion over what is purchased, hence the name.

Budget Lesson #2 – Lesson #2 contains the details of our monthly bills. These are the ones that are consistent, predictable, and actually due each month. Most people take these for granted as the bills they have to pay, but it’s not true. You can get almost all of your regular bills reduced just by asking. You would also be surprised what you can do without, when properly motivated.

Budget Lesson #3 – This is where I explain how we deal with the non-monthly bills. That is, the bills that have to be paid, but are not due on a monthly basis. I also share the personal budget spreadsheet template I developed. I am working on a few sample templates to match various imaginary scenarios. If you’d like to be an anonymous case study, and get free help setting up a budget, let me know, please.

Budget Lesson #4 – In this lesson, I describe our “set-aside” funds for things that will need to be paid eventually, but not on a set schedule. Sometimes, they are never actually due. We set aside money for the parties we throw, for car repairs and for a number of other things. A few of these items are outright optional, but they are part of what makes life fun. You can’t make a budget without including some of the extras.

Budget Lesson #5 – This is the companion piece to lesson 2. Learn how I’ve reduced–or attempted to reduce–each of these bills. For the better part of two years, I called Dish Network every few months to ask for a discount. For almost 2 years, it was granted. Then one, day, they told me they were putting a note on our account to keep us from getting any more discounts, so I canceled. 100% discounts help us save more.

Budget Lesson #6 – This is the reduction companion to lesson 3. These bills are harder to reduce. Have you ever successfully gotten your property taxes lowered?

Budget Lesson #7 – This is the reduction companion to lesson 4. Notice a pattern, yet?

Budget Lesson #8 – Here, completely out of order, is the reduction companion to lesson 1. Watch as I magically reduce–or rationalize–our discretionary budget.

So, dear readers, what part of budgeting should I address next?

Budgeting tips – sticking to your budget

Finance

If you are looking to get out of debt, or you are currently debt-free and want to stay that way, then it is important that you get a grip of your financial situation and live within your means.

A good way to do this is to create a budget as this gives you a clear indication of how much money is coming in, how much is going out and also highlights any areas where you may need to make cut backs should you be falling short each month.

Once you have sorted out the figures and made necessary amendments, for example paying bills by direct debit in order to make savings or cutting existing debts by carrying out a balance transfer to a lower rate credit card, it is time to start focussing on the lifestyle changes.

As you will find, it is one thing to create a budget and quite another to stick to it, but by adhering to the following steps and exercising a certain amount of will power, you should be able to ensure that you live within your means and resist the urge to reach for that credit card.

Keep focussed

Before you start to look at how you can stick to your budget you need to clarify why you need to stick to your budget!

A budget can initially seem like something that has been devised with the sole intention of stopping you having fun and buying or doing the things that you want. So it is important to remember that, though some cutbacks may be necessary in the short term, a budget is a long-term strategy that will allow you to take control of your finances and, all being well, live a happy life that is free from the worry of excessive debt.

Change your habits

Unfortunately, a successful budget can require a change in lifestyle and this can be one of the most difficult things to adhere to.

For example, if you have previously enjoyed eating out regularly then you may have to make cut backs in this area to ensure that you are living within your means. But, instead of seeing this as a negative, try to focus on the positives and remember the reasons why you are budgeting.

And a change in habits doesn’t necessarily mean that you have to cut back on your enjoyment of life and it may actually open your eyes to other pursuits you may not have previously considered.

For example, instead of eating out try preparing a meal at home and turn your dining room into a restaurant. This means that you can still have the fine dining experience but at a fraction of the price and without the worry of making a reservation!

Shop smarter

Lists figure heavily when creating a personal budget and list-making is a habit that you should get used to when trying to stick to your budget.

When budgeting it is vitally important to avoid impulse buying and a great way to do this is to always make a list of things you need before you go shopping.

This means that you will have a clear idea of what you need and you will be less inclined to make random purchases that may just turn out to be an unnecessary drain on your finances. It’s also worth mentioning at this point that you should always differentiate and prioritise the things you need over the things you simply want.

If you are unsure how to make the distinction then put off making the purchase for a couple of days and then reconsider if you actually need it. This cooling off period will often convince you that you can do without it and save you money.

In addition, savings can be made on your shopping by simply swapping big name brands for supermarket own varieties, using discount coupons and looking for any special offers.

Overall, it is important to be fully focussed and committed to your budget plan and to be aware that a change in finances may require a change in lifestyle. But a few short term changes may well add up to better finances in the long term.

Article written by Les Roberts, budget reporter at Moneysupermarket.com.

How to Live Happily Without a Budget

Finance

Three years ago, we sat down and built our budget. We spent 9 months adding the non-monthly bills that we forgot about when we created the budget. Setbacks and shortfalls almost killed the budgeting plan completely. It took almost an entire year to get our budget right.

Unrelated Image

Now? I refer to the budget once per month. No more. I don’t check it at bill-paying time. I don’t think about it daily. It’s there as a reference when I need it, but it no longer drives our finances. How did we get to that point?

First, we firmly established our budget. We know exactly what we need to cover our expenses. None of the predictable bills catch us by surprise any more. This is important.

Once we had the budget established, the rest was easy. I moved almost every bill to US Bank’s online bill-pay system and switched to electronic billing and automatic payments. The automatic payments are all through US Bank. I only allow my mortgage to be set up with the merchant. I want total, instant control over the rest. I won’t call a merchant to ask them to change a payment if something comes up. The bank sends me an email when a payment is automatically scheduled, and again when it is paid.

Once I got comfortable with the automatic payments, I switched to electronic billing. I don’t need to see the bill or waste the paper if I know it is being handled for me which is why I encourage you to manage all your finances online. I do check the few bills that may change, like the credit card and cell phone. Now, I see few of my bills. They are all sent electronically to my bank, automatically paid, and scheduled in Quicken–all without intervention from me.

[ad name=”inlineleft”]We also use an envelope system. I know how much we need for groceries, baby crap, clothes, etc. At the beginning of the month, I take out all of that money in cash and put it into the appropriate envelopes. Other than this money, almost everything else takes care of itself. I don’t need to pay attention to by bills on a day-t0-day basis. Any extra money that comes in gets divided among our debt repayment and savings goals, which only takes a few minutes to arrange.

I glance over my budget at the beginning of every month, but I only review it when something changes. If we change our cell phone, or our budgeted gas bill changes, I make the change to our budget. Other than that, it’s not even an afterthought.

That’s how we do it.

Another option includes the Sloppy Math System. This consists simply of rounding deposits down and rounding expenses up. The more you round, the better the system works. If you round every deposit down $50, and round every expense up to the next $10, you are naturally building more room for error. Given enough time, you will have enough of a slush fund to handle emergencies and the occasional impulse purchase.

Search Results for: how-much-should-you-tip/three-alternatives-to-a-budget