The Key to Budgeting

October 23, 2014 at 7:01 pm Leave a comment

Compartmentalization!

That is the key, right there.  One of the most successful methods of budgeting is the envelope method.  It involves taking all of your money and dividing it among envelopes, one for each category of spending. When you run out of money in that category, you are done spending from it.  By having your money right there in front of you, you can count it, and see exactly how much you have.  Thinking ahead just a little will let you plan for how much to spend, assuming you know when you’ll get paid again.

This method compartmentalizes your money.  Instead of having a single balance of $2000, you could have an envelope for these sample categories:

Rent $500
Car Payment $300
Car Insurance $100
Cell Phone $50
Cable TV & Internet $100
Groceries $400
Gas $300
Lunch $50
Entertainment $100
Medical $100

Breaking your money down into these compartments helps you to see exactly what each pile of money is for.  Instead of feeling like you have $2000, you’ll see that, in truth, most of that money is spoken for.  Placing it in these compartments lets you see how scarce a resource your money is, so that you can make more informed decisions.

Before I started budgeting, I suffered from not knowing where all my money went.  Now that I’m budgeting to the penny every month, I can tell you exactly how much money I have available to spend on just about anything I need.

Now, I don’t actually suggest that anyone carry around all their money in envelopes.  Instead, I’ve been using YNAB (YouNeedABudget) for about a year and a half.  With it, you place your income into virtual envelopes called budget categories.  YNAB is an amazing piece of software that runs on your Windows or Mac computer, and syncs to your iPhone or Android smart phone.  That means at any time you can pull out your phone and see exactly how much you have available to spend in any of your budget categories.  Sharing a budget with your spouse?  No problem!  It will sync between multiple phones, so you’ll know within minutes of your spouse entering new transactions.  It even uses GPS to make data entry easy for places you’ve visited before.  It lets you track your budget and your spending, in one place.  Read more about it here:  YouNeedABudget

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Entry filed under: General.

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