Part 2 of 5 in Tips for Budgeting

Tracking Numbers - Knowledge is Power

1. Category Pools aka the Envelope Method - Discipline is required here.  If you put $25 into the restaurant envelope then you must hold yourself to spending only $25 in restaurants that week.  When the week (or whatever time period you’ve set) is over, the money left over can be moved to a savings account or kept in the envelope as a rollover amount for those weeks where more than $25 might be justified.

2. Automatic Disbursements - If your employer offers direct deposit, you can automatically disburse a percentage of your paycheck to a savings account so that amount of money is never really considered as part of your daily living expenses.  If our paycheck is $1000, we live in a way that uses up that $1000.  If we make our paycheck $850 dollars, we will live a lifestyle that uses up that $850.  Lets say you are paid every two weeks and put $150 of each paycheck into that savings account which you do not have regular access to.  After just one year you would have accrued a savings of $3900.  Congratulations, you have more saved than the typical American family.

3. Electronic Monitoring - Credit cards (lots of incentives–cashback, points, miles–for responsible use) combined with programs like www.mint.com or quicken make monitoring your spending almost automatic.  Seeing the relative percentage of how much money goes into different categories in graphs and summaries can be a sobering and challenging experience, but its helpful to know what we are investing in.  Spending really is investing.  Half the battle of being generous with our resources is knowing where we spend already.