If you are planning on being successful with your finances this year, you and a written budget should consider becoming very familiar with each other.

I wish there were an exception to this process, but your spending plan IS your roadmap to financial success.  Every month, I conquer my battle against financial distress by creating a budget.  It’s my battle plan. 

Many times we get discouraged after we attempt a new process only to be stopped dead in our tracks by roadblocks.  Are these roadblocks meant to be a dead end?  No.  A roadblock is an action or condition that obstructs or hinders progress toward an objective.  Very important words – obstructs or hinders – not stop. 

If you’ve tried budgeting before and it didn’t work, consider giving it another attempt.  You remember what W. C. Fields said, “If at first you don’t succeed, try, try again.”  Your first budget may not be or may not have been perfect, but I hope the suggestions below will help to lessen your learning curve and help you become more confident with your money management process.

Balance your checkbook.  Before you can start your budget, you must balance your checkbook so you will know how much money you have left in your account to spend for the rest of the current month. 

Now you can create your plan for the next month.  Because a budget is a “monthly” cash flow plan, you have to try your best not to spend any of the new income you receive within the month.  This money will be used for budgeting next month’s income.  For example, today is January 7th and I just created my first budget.  My pay dates are January 15th and January 30th.  The money received on the 15th and the 30th will be the income used for my February budget and spending.

Carry a notebook everywhere you go.  This is a tedious process, but it can help you to estimate dollar amounts for your budget categories.  After creating your initial budget, make it a point to write down actual amounts you are spending for each category.  Compare those numbers to your budget estimates.  Are your estimates too strict?  To loose?

Include a mandatory “blow” money category. This area can be your lifesaver.  The blow money category relieves you of surprises and  small instances of overspending.  You place money in this category on purpose to alleviate these financial surprises.  The amount varies depending on your income and your spending tolerance.  You can thank me for this advice later.

Prepare for Lump Sum payments.  These are non-monthly payments which can put a snag in your entire plan if not accounted for.  The answer?  Convert them into monthly savings to avoid strain when the payments are due.  For example, your auto insurance is due in June with a payment of $550.  Since we are currently in the month of January, you have five more months to save up for this large payment.  To calculate the monthly amount to set aside, you would use the following calculation:  $550/5 = $110.  So, you must allocate $110 each month in your budget for auto insurance.  This example holds true for ALL lump sum payments (ex. Real Estate Taxes, Homeowners Insurance, Home Repairs, Medical Bills, Tuition, Vacation, Christmas, etc).

Be patient and flexible.  Just as Rome wasn’t built in a day, your budget won’t be perfect in one day, but it will be your guide for spending.  You may at sometime during the month have to change the budget, but it still has to balance zero. For instance, if you have an unexpected expense that requires a $100 payment, you will have to adjust the budget to spend $100 less in another category.  This will keep your budget balance at zero instead of $100 negative. 

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Will you still have to encounter speed bumps?  Probably.  But when issues arise, you will be better equipped to handle them.  Don’t waste time on minute details.  There are plenty of resources available to you to help you reach your financial goals.  Feel free to ask questions.  Matter of fact, I encourage them.

Tell us about your budget bumps or successes in the comments.  We’d love to hear from you.

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Today, I want to discuss a question that was sent to me a couple of weeks ago by a reader.  Shortly after the launch of this site, she read all of the information and seemed excited about the possibility of being able to take control of her financial situation, but couldn’t see how it could be done at this point in her life.

From a windfall of circumstances which included marriage, a child, lifestyle choices and poor career decisions, she and her husband have found themselves in a place where they pay more in bills than they make on a monthly basis.  Her email to me ended with the following statement:

“I think the envelope method is great, in theory, but what if there is nothing but air to put in it.”

This readers concerns are not unique.  Her concerns are more common than we realize.  It’s very easy to manage money when you are single, but when mixing marriage and children, the whole equation shifts and changes.  You are now responsible and accountable to and for other people.

The answer to her question is not an easy one.  Firstly, I don’t know all the details of her financial situation.  Secondly, it’s going to take the efforts of both she and her husband to work EXTREMELY hard to get through this.

I’m embarrassed to say that after a few emails back and forth, I gave her quick advice.  The advice was to create a second source of income and/or sell some things.  I thought that our emails would continue and I would offer additional advice once I got into more of the particulars, but she didn’t respond to that final e-mail.  This has left me concerned and wondering if she has been able to find clarity and hope in her financial matters.

So, this is my second attempt to connect with her and offer a light at the end of the tunnel.  My desire is that she and her husband start working now to achieve financial peace.  The initial advice I gave really does not change,  but I’ll be more detailed and offer other suggestions as well.  They are listed below…

1. Create a budget.  I feel like a broken record with this point, but a budget is the cornerstone of creating financial peace.  You have to be able to see where your money is going and eliminate wasteful areas.  Once the budget is created, stick to it.
2. Stop using all forms of credit and create an envelope system using cash.  This will be for incidentals such as gas, eating out (if at all), grocery shopping, etc.
3. Be creative with finding a 2nd source of income.  I do understand that we lead very busy lives, but in order to create this freedom it’s going to take some sacrifice for a short period of time.  I repeat, not forever, just a short period of time.  Look online and find legitimate and realistic suggestions for creating additional income.  From her e-mail, I can assume that she and her husband are well educated.  Some possibilities to consider would be tutoring, teaching online courses, etc. It may not be possible for both of  them to work extra hours because of their child, but the extra hours/income of one can help to start the process. 
4. Consider selling some things through EBay or local consignment shops.  Both of these types of stores exist all over the country now.  Call around locally to see how the process works and if this can be a match for your needs.
5. Make some lifestyle adjustments.  Are there any extras that you all can do without at this time to minimize costs? No amount is too small.
6. Take the deer by the horns.  What does this mean?  I’m not sure if your husband is willing to become financially stable.  Take the lead, create a plan and suggest using the plan (with excitement).  Let him know that you are concerned as well as frustrated about the present financial state.  Then, show him your motivation to change it.  Believe it or not, excitement and motivation are contagious.  Showing him how one sample plan can work may be enough to get him inspired.  The two of you working together can accomplish all of your goals.  

I know that this information is not the microwave get out of debt quick solution, but it does offer a starting place.  If you can just get the process started, it’ll be a lot easier to continue. 

Just remember that life is a journey and we all have our lessons to learn.  I’m cheering for you and hope that you will find some conciliation in the recommendations I have made.  Have faith and refuse to believe that your situation is permanent, because it isn’t.  I’m reminded of a quote by Napoleon Hill, “Whatever the mind can believe and conceive, it can achieve.”  Once you both decide that becoming debt free is something you want to do, your minds will become clear and open to “how” you can achieve it.

I wish you guys the best!!!  If you are reading this, please feel free to contact me again.  I promise I will do everything I can to offer better solutions!

If you have a question you would like to ask, please feel free to do so by clicking on the “Ask A Question” link to the right.  Don’t forget to subscribe via RSS or E-mail to receive updates from this site!  If you have already subscribed, I want to say thank you.  This website is becoming a success because of you and your support.  I send you much love!

I have been using the envelope system since my husband and I started paying off debt.  Next to creating the budget, it has been one of the most important systems I used in conquering my debt. 

What is the envelope system?  It is a very basic method used in parallel with a budget.  Within a budget, there are categories.  For example: hair care, groceries, gas, restaurants, clothing, etc.  You then create and fund an envelope for each specified category.  Money is then spent out of that particular envelope (for the month) until the money is gone. 

Four benefits of using the envelope system:

1.  Break the spending cycle.  Many of us get our paycheck, pay our bills, put some money in savings and have some left over in the checking account.  Let’s say the amount left over in the checking account is $600.  Well, what if I wanted to buy a new dress, buy grocery, get my hair done, purchase gas, and go out to eat a couple of times this month.  I could easily overspend by just winging it.  With the envelope system, I’ll know at the beginning of the month what I have to spend in each, for example, $200 (grocery), $100 (new dress), $150 (gas), $50 (hair), $100 (eating out).

2. Ease of use.  You need envelopes and cash.  That’s all.  It provides a simple way to keep track of your money.

3. Forces the use of cash (not credit).  The only way to stop the vicious cycle of credit card debt is to use CASH ONLY. 

4. Better management of your checking account.  Have you ever received that dreaded statement from your bank stating that your account is now “overdrawn”?  You now have a hefty NSF fee from the merchant as well as an overdraft charge from your bank.  So much money is given to merchants and banks monthly due to the oversight of being overdrawn.  The envelope system stops this common practice.

When I started using this system, running out of money close to the end of the month was a distant memory.  You know the feeling of, ”Oh God, I can’t wait until the next payday”, and it’s a week and a half away.  This is a more simple and relaxed method to spend money.

Do you use the envelope system?  Have you tried and failed at it?  Do you not see the need?  I’d like to hear from you.  Share your insights in the comments.

This is going to be a very short, but very informative post where I will discuss the basics of budgeting.

The cornerstone of creating your peace financially begins with a budget or a monthly cash flow plan.  It is a very simple and easy system to use. 

The best and most detailed monthly cash flow plan I have seen is the one created by Dave Ramsey.  I’ll link to it here.  This plan doesn’t allow you to forget about anything that is attached to your monthly income.

When I created my first budget, I typed everything in Excel just as it is on the cash flow plan.  I kept it very simple though and listed my total monthly “Income” at the very top and subtracted all total monthly “expenses” following.  The final row was the “Balance” which should be zero as we are creating a “zero based budget”.  Because we were paying off debt, I also included a row for “Extra Money to Pay Off Debt”.  I kept this separate so that I could on purpose put money towards paying off the debt. 

Again, this is a very basic system that can also be done with just a pencil, paper and a calculator.  It’s all up to you and what you are comfortable with.  What’s important is that you get started.  Get it done today and let’s see what you can accomplish.

Thanks for reading and enjoy creating your life of freedom!!!

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