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Monday, July 23, 2012

Envelope System: Month 8

I'm learning to tweak the system in new ways. Ways that'll help us be on top of our game at the end of the month.

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I decided that this month I'd go back into the checking account to see just how much is being borrowed and deposited from other accounts. I first, reduced our budget by that much, which made things a bit tighter than usual.

I did this just as a mental game for myself. I have myself tricked that we have less money to work with this month. In the past, when I've left any money unbudgeted, I've spent it in my brain in multiple places until I find myself in trouble. If I think there's extra money, I spend like there's extra money, but this month, because I think there isn't enough, hopefully there will be extra at the end of the month and even more can be added to those accounts that have been drawn from.

The biggest expense this month will be the trip to take #1 to school. This is a new expense that will have to be added to the budget. That's the joy of budgets, though. They are personal and can flex as your life changes.

I know in some of the previous posts I've given specifics about this process, but if you haven't read any of those, here's how it shakes out.....

Create a spreadsheet and document your expenses (this is a partial snapshot of what ours contains):
  • Income - we do his, mine and other and then I total them all
  • Fixed expenditures
    • Mortgage
    • Insurance - detailed homeowners/renters, car, life, property, etc.
    • Savings/investments, etc.
  • Variable expeditures
    • Fuel
    • Utilities - I detail these: electricity, water, garbage, etc. They each have their own line.
    • Household operation expenses - again, detailed: lawn/garden, fridge water filter, etc.
    • Transportation - oil changes, repairs, etc. I also just added a "new car fund." There isn't any money budgeted for that yet, but when we've decided that that will become more of a priority and set a goal for what we think would be sufficient for our family, we'll start stowing money away for that as well.
    • Birthdays/gifts - I put every person in the family's name on their own line.
    • Pocket money - This is just for me and the Warden. We have a completely separate account set up at a completely different institution for our children's savings, etc.
    • Food
    • Personal care
    • Recreation/entertainment
    • Medical/dental
    • Special expenses - This includes sports, Christmas, etc.
    • Miscellaneous - I even detail this--future ACT/SAT test fees, Christmas cards/postage, EFY, etc. This, if left undetailed, will fall under the same category I was describing above. It would be like unbudgeted dollars, and I'd spend it over and over again without hesitation.

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As the year has gone on, I've added some expenses that I've found come around seasonally, so I can save for them for the next year. This month I added on a school supply and school clothes budget. I wish I would have thought of those things earlier, so I would have been set by now.

After you set up your categories, go through past records and find an average of how much you spend on each thing. This can be rather time consuming if this is your first budget. The first time I set it up, I went through the three most recent months' bank statements and figured the amounts from that. It might be an even better idea to look at statements that came out three months from each other just to give you an idea on seasonal spending.

For those bills I pay every other month or quarterly, I divide them into equal portions and pay the same amount each month. For example, we pay our garbage bill every other month. I called the garbage company (my kids call them the "WMDs"--the Waste Management dudes) and asked them if they would be okay with this arrangement. They gave me the thumbs up, so that's how we've done it ever since. This way, we're not $64 richer one month and $64 poorer the next. We're just out $32 each month.

The only company I found that wouldn't go for this set up was our life insurance company, which is a yearly expense. We used to just pay it when our tax return came out, but now I took the total amount, divided it by twelve and have my bank automatically transfer 1/12 of it to a special account each month. It will accumulate there until I need to pay it. That way if, by chance, there is no tax return, we can still pay it without sweating it.

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At the bottom of the spreadsheet, after I've categorized all of my spending, I have a section for a "summary." In this section, I add up the cost for both fixed and flexible expenditures and subtract them from the total income.If that total line is a negative number, clearly I'm planning on spending more than I have coming in. In that case, I need to do some re-thinking. If that number is positive, which is wonderful, I have extra to spend and can reallocate those funds to which ever area I want to. When all is said and done, however, that number HAS to be zero. Even if you put all of that extra money into an emergency fund, which I would advise, do it. Get it out of there, or you'll be continually thinking of all the wonderful ways you can spend it. Before you know it, you will have spent it in not just one but all of those ways because heck, why not?--There, now you've seen into my brain. Scary how it works, huh?

Recently, just to make things easier on myself, next to each category, I have added a line for how that particular bill is paid. There are some I use my bank's online bill pay system for, there are some I use that institution's autopay feature for, there's one I pay with a check, and the others are cash.

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Next thing I do is go through the cash paid categories. As you go a wee bit farther out to the right on my spreadsheet, you will see, way across the top, a space that says 100, one that says 50, and then continues with 20, 10, 5, and 1. As I go to each item that says cash after it, I figure out how many of each of these denominations I need to cover that expense for the month. I have a friend that figures this weekly, which I think is a fabulous idea, but I just don't want to run to the bank every week. You're lucky to get me there monthly, as it is. I prefer the conveniences of online banking and the ATM usually.

I total how many of each type--how many 100s, 50s, 20s, and so on--I need. I then figure out how much money that comes to both individually and collectively, print it out, and head to the bank. At the bank, they ask for my account number and my photo I.D. I also have to sign for the money before she goes to count  it out. She counts it in front of me, puts it in an envelope, and I'm off.

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I go home, pull up my spreadsheet, get out my marked envelopes (the envelopes titles correspond with the items on my spreadsheet) and divvy up the cash. Some things I split between the Warden and me. Other things I put in my purse for this week's use. Still others I put away for future use. I have envelopes for longer term spending and those for shorter term--an envelope containing smaller denominations marked for groceries week 2, 3, 4, and 5 and for dates weeks 2, 3, 4, and 5 that I stash away.

That's about how it goes. I love that when I go to my bank statement and see the same few things paid there each month. I love the lack of guess work that this creates. I love knowing where I stand financially at any given moment.

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