Now that you have the budget (see the previous post), the trick is actually executing it. Here again, this is where many people fall short. Obviously, your recurring expenses are what they are and one will not go over budget there. The issues are things like food, clothing, household, and yard maintenance items that end up costing more than you expect.
Realize that retail stores are designed to get you to buy things you were not intending to get. You walk into the supermarket and see a great sale on laundry soap which you buy even though you weren’t planning to buy soap this week. The hardware store has a display of tools and you find yourself picking up a set of screwdrivers even though you have a set at home and have no intention of using them this month. You’re walking through a department store and see a display of shirts or socks or something and think, “Hey, I could use that.” Next thing you know, you have blown your budget. This is what you were trying to avoid in setting up a budget.
One way to avoid going over budget is to use a cash and envelope system. Beyond ensuring that you can’t accidentally spend more than you intend to for a category, using cash will actually cause you to spend less since people tend to spend less with cash than they do with credit. In this system you bring home cash at the start of the month, or perhaps every two weeks, and place it in envelopes corresponding to the expenses it is meant for. For example, you could have a clothing envelope, a food envelope, and a yard item envelope. You then only buy items corresponding to the category on the envelope and when you are out of cash in the envelope, you stop buying items in that category.
This may take some iteration at first since you may find food costs more than you think, even if you are careful in what you buy. If this happens, you need to return to the budget (with your spouse, if you are married) and figure out where the money will come from and adjust the budget. While it may seem silly at first, this type of discipline will stop you from making spur-of-the-moment decisions that will blow the budget. After a few months you should have a good handle of how much money is needed for each of the different categories.
Can you go without an envelope system? Yes, but you need to be willing to track what your costs are by saving your receipts and subtracting what you have spent from your total for the category as you go. It is probably easier to just use envelopes and cash.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.