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Ways to budget your money

By Naomi Mannino ·
Tuesday, January 17, 2012
Posted: 5 pm ET

Was using a budget one of your 2012 New Year's resolutions? 

About 40 percent of Americans do not maintain a budget or track their expenses, according to Bankrate's July 2011 Financial Security Index. But if you want to get a better handle on your spending and saving, evaluating your budgeting method and making changes will increase your resolve.

Financial guru Dave Ramsey uses an envelope budgeting system: Put an allotted amount of cash in an envelope, and use only what's in the envelope. This system appealed to me. When the money's gone from the "eating out" envelope, we don't eat out again until the envelope is replenished according to our spending plan. Another organization system is handling your money online, but each system poses pros and cons.

Which budgeting system works for me?
  Budget money in envelopes Budget money virtually
Easy to organize Yes No
Easy to follow No No
Easy to access No Yes
Easy to protect No Yes
Easy to account Yes No

Cashing paychecks, making cash withdrawals and dividing the money gets tiresome each month. But if you start leaving a larger portion of it in the bank every month, you can't always rely on your own mental accounting, says Gary Belsky, author of "Why Smart People Make Big Money Mistakes." "You simply don't treat $100 in the bank the same as $100 in your hand or $100 you earned the same as $100 that was given to you on a gift card," he says.

When the money is in the bank, it's easy to see where all the money went afterward. But it's not so easy to decide what's left in each category. Online budget worksheets are helpful. Some online budgeting services do show your budget allotments and spending, but they're unwieldy in terms of which accounts can be included or excluded. For example, one account may be used for business expenses and have nothing to do with your household budget.

Accessing the money is another issue. If you have cash in envelopes, you should keep them in a safe. But then you have to keep track of the key. If money is in the bank it's protected from thievery, but not from other household members with debit cards to that account. Every time you need money for anything during the day such as gas or other errands, you need to remember to get the money from the envelopes before you leave the house.

Through the envelope system of budgeting, I learned the hard way where I was spending too much every month, which hurts more than just taking it from another category by swiping a debit card to make the purchase.

So which budget system works best for you?

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1 Comment
Save First
January 17, 2012 at 10:28 pm

#1 - Save retirement assets and emergency fund first.

#2 - Spend what is left and maintain a 4-paycheck look-forward schedule. Know exactly which paycheck will cover the next bill from your insurance, utilities, mortgage, car payments, credit card, etc... to meet deadlines.

#3 - Keep a slight reserve in your checking for quick, unexpected expenses.

Now I know that sounds like a pipe dream or something only a -figure income will allow, but that is false. Making yourself accountable to live within your means, which includes long-term planning, is not impossible. For many generations, this is how our grandparents and parents lived and sadly, it is a lost financial art that was replaced by today's "I need it now" society.

Drive an older car, live in a cheaper house, watch less cable channels, and control your spending (don't let it control your behaviors).