Is overspending and impulse purchases one of your biggest weaknesses? How about setting up a simple budgeting system to keep yourself accountable?
Sometimes, Grandma’s methods to save money works best. In the past, people used to keep cash in envelopes to keep track of their spending. In today’s culture, however, the rise of credit card lifestyles and e-wallets have made counting cash a thing of the past.
The envelope method of saving money can actually be replicated today by using an Excel spreadsheet or Numbers software in Mac. If you will like more features or convenience, there are probably some good personal finance apps out there that help you track your income and spending.
Here’re some rules to follow when setting up the envelope system to track your personal spending:
Budgeting Every Income & Paycheck
While it may be hard to do this, schedule 1 hour on the 1st Monday of every month – put down all your expected income and its sources. This may be hard in the beginning, but if you are going to be successful at budgeting, you need to get started.
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Create Categories for Your Spending
You know each month you have to pay bills for food, utilities, transport, new clothes and entertainment? Yes, fill these up accordingly.
Forecast Your Spending for Each Category
Now, I suggest this based on what I learnt working in previous investment analyst roles. Always forecast your expenses 1 month in advance. Have a forecast for each category above – food, utilities, transport, new clothes and entertainment. If you think you will spend $500 on food, put that down.
Sometimes, expenses can pop out of nowhere. I suggest setting aside a contingency fund of $500 to take care of this. If you end up not spending it, it goes into your savings at the end of the month.
Budgeting Your Personal Monthly Income Statement
Now that you have completed the above steps, you have your 1st personal income statement for the month! Congrats! In accounting, you have a Net Profit after you use Income – Expenses. In your own personal budget, simply consider this Net Profit as the Monthly Savings that you get.
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End of the Month Tally
Remember, the above is just a forecast. What you need to do as a final step, is to tally up the actual numbers at the end of the month. You can have a column for variances – to check if you overspent on your forecast.
Here’s how it looks. Notice how simple it can be?
|Categories (Monthly)||Forecast ($)||Actual ($)||Variance ($)|
|Income - Job||4,000||4,000||-|
|Income - Side Hustle||500||300||(200)|
|Expense - Food||(500)||(450)||50|
|Expense - Utilities||(300)||(300)||-|
|Expense - Transport||(300)||(250)||50|
|Expense - Clothing||(200)||(280)||(80)|
|Expense - Entertainment||(500)||(600)||(100)|
Give it Some Time
When you are adjusting to a new personal budgeting system, you may find it difficult to keep going in the beginning. Don’t give up after a month or two! You’ll soon get the hang of it and reap the benefits of keeping to the envelope system. Next, see how it helps you reduce credit card debt, save money, build wealth and find financial peace!
Have Fun Budgeting
The best way to keep to a good habit is to enjoy doing it. While it may be hard in the beginning, maybe you can try giving yourself a small reward for sticking to the envelope system as you go along. Say, for example, give yourself a nice treat at your favorite restaurant at the end of each month.
Just remember to budget for it!