LWM

We left off last time talking about making a budget, I know just building the budget can be difficult, keeping it will even be more difficult if you do not discipline yourself so be ready to stick to what ever you put down in your budget. If you make a budget and do not follow it then this will not work, you must follow your budget (and it is YOUR budget, you made it).

Before I go too far I have to throw a wrinkle into this for all you married folks like me, you have to do this as a couple. If you are set to follow a budget but your spouse is not on board you will fail, it takes a full commitment from all involved parties to get out of debt and to remain debt free.

In the last blog I talked about several items to be included in your expense section of your budget, at this time I want you to go back in and add “Small Emergency Fund” into the list (I suggest you put this as your first expense right under income). You need to budget this or you will not save, when you get $1,000 in this account you can stop funding it and we will talk later about increasing that amount as that is another step in the future (remember this $1,000 is for emergencies).

Now comes the hard part, go down the row for the current month and start to plug in the expense items that you know are the same every month (mortgage, car payment, etc.) and then if you set up automatic calculation you will see how much you have left to split between your other expenses. Now move on to the other monthly expenses that you know are very similar every month like your utilities and once you have all your regular expenses listed we can move on to the expenses that are not fixed amounts (like food, gasoline, etc.).

The above might sound like a lot of work but once you have done this for a month or two you will see how fast you can complete this task.

Okay, I will assume that if you are still reading you are interested and you have planned out your budget. Now I want to talk about envelopes… Yes, that is what I said; we are going to talk about envelopes. When my father-in-law told me about this system some 20 years ago I thought he was just an old man with old ideas, well let me tell you it works.

Like most everyone else I have some bills that I pay on-line (mortgage, utility bills, vehicle registration, etc) and I have some things I paid for with my debit card (gas, groceries, most daily purchases). I thought it was a lot safer and easier to use the debt car instead of cash and in some ways I was correct but there is a real danger to using the debit card in the way I did.

So here is how the envelope system works… When you get your paycheck you need to cash it and take the cash home with you, if you have auto payroll deposit you need to go to the back and get some cash out. Now how much cash do you need? That depends on your budget, I leave enough in for those items that I pay on-line and I take the rest out for the envelope system that I am going to share with you in the next blog.