Setting up Controls
OK, so now you have your budget, but a bunch of numbers on paper doesn’t mean much. You have to start following the budget and that is going to be difficult, especially the first couple of months. To make sure that you are following your budget you are going to have to set up some control systems.
The first control system is your spending tracker, a way for you to keep track of how much you spend and where. There are two basic options to choose from, although you can modify either to fit your situation.
First is the envelope system, which I am sure most of you have heard of, which is best for those who don’t have internet or prefer paper. It’s where you take a bunch of envelopes and on each one write a different spending category and the per pay-period budgeted amount (meaning the amount you budgeted for that category divided by your number of pay periods in a month). Then when you get your paycheck you cash it and divide it up based upon the amount written on the envelopes. Then when it comes time to spend in that category you go to that envelope. If there is money there you can spend it, if there is not enough or no money in the envelope then you will have to wait until your next pay period. The drawbacks with this system are that you have to keep a bunch of cash in your house and it is very easy to steal from one envelope to feed another.
The second control system is just like the envelope system, but with bank accounts. And, no you do not have to have a separate account for each spending category, but you will need at least 3 accounts to make this system work. You will need a Checking Account, a Debit Account, and a Savings Account. The checking account is going to be used to pay bills with, the debit account is going to be used for your flexible expenses, and the savings account is going to be used for your goal saving and your periodic expenses. I would recommend that you set up a couple of savings accounts just to further the separation and remove the temptation to spend when you see a bunch of money in one account. When you get paid divide the money up between the different accounts, based upon your budget, and just like with the envelope system, if there is money then you can spend it, if not then you wait till your next payday.
The third control system to put in place is a filing system. To effectively take care of your bills you need to keep track of your statements, invoices, and important financial documents. It does not have to be elaborate; you do not have to spend thousands at the office supply store. You just need to have a way to collect and easily find documents when needed. At the least you should have a file for those bills you need to pay in date order, a file for those bills you have paid by month, and a file for important documents you are going to have to refer back to like your mortgage, insurance policies, warranties, and repairs. This system will allow you to easily find documents from last month or two years ago.
Monitor your progress
You now have a working budget and a way to control your spending to have the best chance of meeting your financial goals. You are going to need to spend time each month using your budget form to check your progress. If you are using the envelope system then monitoring is very easy, all you have to do is look at the envelopes. Are the right amounts in each, did you rob from one envelope to feed another? If not then great, but if you did then you will need to rework your budget to get back on track.
If you are using the bank account system then you can use the paper budget to check your spending. Just total up your spending by category, like you did when you kept your receipts, and fill in the Actual Spending column on your budget. List your income for the month at the bottom and then total up your spending. Or you can use one of the many websites or mobile apps that are designed to help consumers budget. The one I use is Mint and it is a free website with a mobile application. I can enter my budget and it can capture my banking transactions automatically, and I can enter my cash spending to categorize that as well. It will then compare my spending to my budget and it will alert me when I overspend a category, by text or email. This program does not have access to my money, just my transactions, so there is little risk there. Learnvest will help you organize your investments with your budget. However, if you do not trust the internet but still want to do it on the computer then there are also desktop budgeting program like Intuit’s Quicken which does the same thing without your information floating out around the world-wide-web.
The best thing you can do for your sanity during this period is expect to fail. The first three months are the toughest as you get used to your new spending limits. You will overspend and you will rework, just don’t give up. If you spent 100 more on food then you were supposed to then spend 100 less the next. If you find the amount allotted for food was too little then change the spending in other categories to free up the money to raise that amount, just don’t give up. It will get easier with time as your new habits form and become second nature.
Look for Own Your Life – Dealing with Debt. This will be the final article to this 5 part series.
A Debt Coach Credit Counseling Service. 888-767-9155, Adebtcoach.org