Budgets Made Easy
A true monthly budget is a list of all income and planned expenses. For most of us, a budget is simply a way for us to keep track of our monthly bills and a means to get them paid each month. Just thinking about setting up a personal budget can make us cringe. But at some point or another, every one of us has had to follow a budget, whether personal or business. The trick is to find the one that works for you.
Budgets are designed to provide you with the discipline needed in paying your bills and to help you control spending. This is something that we can all use in this day and age. Setting up a personal budget that will work for you is the first step. Depending on your use of bank cards, checks or cash, you can set up or alter any budget plan to fit your individual needs.
We will highlight two very easy plans for you:
The Envelope Budget and a simple Monthly Bill Planner. First, we will explain each plan followed by actual examples of the plans and how they work.
Very often, plans are explained but no real examples are given and directions can be easily misunderstood. We intend by our examples to show you exactly how each plan works and how they can be altered to suit your particular circumstances.
The Envelope Budget
As it is with any budget, the envelope budget system will work but only if you stick to it. Making this system work for you takes some very strict discipline but once utilized, will help you immeasurably. It is easy to set up and quite frankly, sticking to your budget may be the hardest part of this budget plan.
The first thing you need to do is set up an envelope for each of your recurring bills. That means all of your utilities, monthly bills and your rent or mortgage. You should include groceries, gas and even entertainment expenses if you want to really budget all of your expenses. Or, you can just budget your recurring monthly bills. List right on the outside of the envelope the amount of money that you need to put in it from each paycheck.
Every week, before you spend any of your paycheck, you’ll need to put the budgeted amount of money into the envelopes marked for each bill. Then, when it is time to pay your bills, you take the money accumulating in each envelope to make those corresponding payments. Whether you pay cash, get money orders or use a checking account, you will always have the money available to you to pay your bills on time.
Discipline to not move money from one envelope to the other is definitely required. The money in the envelopes has to stay ‘off limits’ for all expenditures except for the intended usage. Working this budget within those guidelines will keep you on track every month.
The Monthly Bill Planner Budget
The monthly bill planner budget is a simple method of listing your bills by the week you intend to pay them. You divide your monthly income into 4 equal amounts and set that amount aside each week. If you are paid bi-weekly then divide your income into 2 parts. I have seen this budget plan work the best by those who have set up a checking account just for paying bills. Each week, or pay period, deposit the needed amount. You can then pay your bills by writing a check or by using the bank’s online bill pay services.
The tricky part of this budget is setting up which bills should be paid which week. Adjustments may need to be made to the payment order to ensure timely payments.
A sure way to make sure your bills are always paid on time is to schedule their payment a week or 2 before they are due. Once you have established a proper payment order, the rest is easy.
One great thing about this budget plan is that with one look you can tell which bills are paid for the month and which ones are still due. You can also track the bills whose payments are increasing each month.
Our examples will use the same bills and amounts due. Our bills in this budget plan come to $1,976.00 a month and cover the house, utilities, 2 cars, insurance and 3 credit card payments. The amounts used in the following are not intended for you to compare your to own bills; they are used merely to provide concrete and easy to use examples.
We divide that monthly bill amount into 4 equal weekly amounts at $494.00. Studies have shown that deducting the same amount each week out of your income for paying bills, has produced better results than taking our $700.00 one week and $300.00 the next. It helps to know and to plan ahead. Keeping an even cash flow allows you to budget for non-recurring monthly bills as well.
Our examples did not include items such as food, gasoline, clothing, entertainment or savings and investment expenses. But both plans can accommodate those expenditures easily enough by just adding more envelopes or lines to the plan. Regular or recurring doctor bills or any additional bills that you pay over time can also be added without difficulty to either plan.
The Envelope Budget Example
Exact amounts will be used in the Envelope Budget example. So we will show you how each week, the $494.00 will be divided into the envelopes.
As you can see from our example envelopes, each week the amount listed on the envelope is put inside. Every four weeks, or as the bills are due, those envelopes will be emptied and those bills paid, no matter if you pay with cash, money order or deposit the money and write a check.
In order to figure out how much each envelope needs, you will have to list your bills and the amount you intend you pay. On many monthly bills, the amount due changes each month, so you may want to set an average amount in each envelope, for instance, an electric bill may be $56.00 one month and $65.00 the next month while perhaps climbing to $135.00 in the summer due to air conditioning .
Only you know what your bills are and so only you can decide how to divide up money to be put into each envelope. Adjust your bill payments as the due dates of your bills require.
Remember, once the money is in the envelope; it is stays there until the bill is paid. The easiest way to fail with this budget is to rob one envelope to pay another. This plan may take a month or 2 to get just right, so don’t give up on it. Give yourself some time to get used to it.
Each week, you will divide up the $494.00 and put the required amount in each envelope as shown in the following. When the bill is finally due, you will have the money in the envelope to pay the bill.
The Monthly Bill Planner Example
For the Monthly Bill Planner example we rounded the figure up to $500.00 each week to be put into the bill paying account in order to pay the bills. Since most checking accounts cannot be left with a zero balance, this will give a cushion of $24.00 each month accruing in the account. You may desire a lesser or perhaps a larger amount left over at the end of the month.
You will have to determine which bills to pay each week by their particular due date. But once this table is set, you shouldn’t have to modify it too much at all. Bills are usually due around the same time each month; just remember to set the payment schedule in such a way that the bill is being paid about 2 weeks before the due date.
For this example, each week $500.00 will be deposited in the bill paying account and depending upon which week it is, you would pay the bills listed under that week. Once the bill has been paid, write the amount you paid in the corresponding box. January has been done to show you what we mean.
This plan works well on paper or on a spread sheet but can easily be made to work on Excel. Remembering to fill in the amounts is key to getting this plan working properly. From past experience, many have found that keeping this list on notebook paper right with the unpaid bills and the checkbook works great.
This example is only shown through June, and would need to be continued on for the rest of the year. At the end of the year, you would have a list of all of your expenses. This will help come tax time if you can take deductions.
Hopefully, these examples are adequate to help you set up your own budget plans. If you have any questions, please submit them in comments below.
If either of these plans has worked for you or if you have helpful hints that you would like to share with other readers, please feel free to leave comments.
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