New Year, New Systems Part 2: Managing Expenses

If you are like me, you want to know where your money is going (even though you know it is going to clothes, shoes, and Chipotle).  I think the key to that is a good budget and a good system to manage your expenses.  So borrowing a little advice from Mr. Dave Ramsey's Guide to Financing, I developed a detailed budget and then placed my budgeted money into his envelope system.  Basically Mr. Ramsey instructs to know where every single dollar is going and to use cash in order to manage this. 

Essentially, each category of your budget (food, clothes, etc.) gets a designated envelope with cold hard cash that you take out at the beginning of the month or biweekly, whatever you prefer.  You place your budgeted money into its designated envelope.  Whenever you purchase something, you take money out of the corresponding envelope.  When you run out of dough, you run out.  There is no replenishing until next month.  So here is what you gotta do to get there:

Step 1 Budget:

I've got multiple spreadsheets going on here.  One for an annual budget and one for each month of the year.  I’ve got money budgeted from groceries and insurance, to Starbucks and dry cleaning.

Annually: Here I’ve got my predictable expenses spread out across a year.  Insurance, car payment, gas, tuition, taxes, cell phone, etc. This helps me see how much of my money is going where in a year.

Monthly: A few days before each month, I’ll plan my upcoming expenses.  If there is nothing unpredictable coming up, it will look just like the annual form.  But if I know I need new tennis shoes soon, I’ve got a birthday/holiday coming up, or I’m planning a vacation, I’ll budget for it that month.  I can also see what percent of my monthly income is going towards each expense.  This is helpful and really provides some perspective.  If 50% of your budget is going towards clothes, something is up.  I also have a column for what I actually spent, and a column for the difference.  That way when the month is over, I can plug in what I’ve actually spent and know if I need to adjust the amount budgeted for the next month. 

Step 2 Envelopes:

After crafting a detailed budget, I placed budgeted money into envelopes (you can find some fun printable envelopes here!) at the beginning of the month.  Below are the categories I chose.  I picked these because it is where I tend to spend frivolously and unpredictably.  But obviously these can be tailored to your own crazy ways.

1.      Groceries: Straight forward.  I tend to stop at Wegmans between the gym and work in the morning to pick out a “treat” for my hard workout or to grab a lunch if I forgot one.  This needs to be controlled.  Hopefully I'll end up eating less muffins as well.

2.      Clothing/Shoes: Some months are more than others if I know I need a holiday outfit or my tennis shoes are wearing thin.

3.      Leisure Activities: Anything in the entertainment department goes here

4.      Dining out/Dranks: Got to budget for hot dates, time with my roomies and friends, and of course, happy hour!

5.      Fast food: I try to avoid eating fast food, but this is for those times where I’m starving and it is not possible to get something from home.

6.      Starbucks/Coffee:  The amount I spend on coffee is ABSURD.  Some days you are just not in the mood for what your K-cup selection has to offer, ya know?  But this is just not necessary so I've capped myself off with this envelope.

7.      Gift Fund: Odds are, there is a birthday/anniversary/holiday sometime in the month

8.      Necessities: Toiletries, deodorant, etc. Things you can’t avoid replenishing every month.  We can’t have you smelling at work because you didn’t budget for soap.

You may have noticed things like gas and co-pays weren’t on this list.  I decided that gas is something I don’t spend a lot on (thank you 10 minute commute!) and when I need to go somewhere it is pretty much unavoidable.  I wouldn’t keep myself from going to the doctor or dentist if I needed it.  I’ve got these hypothetical expenses covered in my budget, but I don’t see a need to inhibit my spending here with an envelope.

Dave says spend all the money you budgeted and if you don't, you've budgeted too much.  I’m twisting this a bit.  I’m going to try to spend as little as possible and split what is leftover at the end of the month.  Half will go into savings and half will go toward my dream jar.  This will be emergency shoe cash or maybe money to put towards furnishing my new place!  We shall see.  Either way, this is an opportunity to reward yourself for not spending everything you budgeted.  But be sure to make adjustments to your budget if you continue to underspend (or overspend!).

So these are my systems!  Dave Ramsey, the bill manager, and I are ready to take on the real world.  What do you use to manage your expenses?  I'd love to hear!

New Year, New Systems Part 1: Bills Bills Bills

Towards the end of last year, I decided that I needed new systems for organizing bills, budgeting, and tracking the way I spend money.  This was mostly driven by the need to pay for grad school, the hopes of buying a home in Loudoun County, AND the fact that I almost missed my credit card bill because it had fallen under my night stand due to my sloppiness.  Not okay.  So I spent a few months Pinterest and Google searching, comparing this method to that method and picking what I thought was right for me. Posting a novel about managing your finances probably isn't the best way to attract or retain readers, so I'll break it up into two posts; managing bills and managing expenses. 

Part 1: Bills, Bills, Bills

Does anyone else have bills flying around in their purse?  Can’t remember if they have paid last month’s credit card bill?  Ask what month is my car insurance due again?  Or slack off at filing the bills you actually managed to pay on time?  I have definitely been guilty of all of these things in the past.

The second I found this idea on Pinterest, I was in love.  Turning something as boring, tedious, and frustrating as bill managing into a cute and custom made system? Done. 

This is what you need:

1.5”-3”, 3 ring binder

1 or 2, 3-ring Pocket Folders

1 set of 5 Sheet Protector Dividers

Monthly Calendar

1 set of 12+ Dividers

I’ve got 5 sections, each designated by a sheet protector divider;

1.      Bills to be paid: under this section, I’ve got a pocket folder with my current bills that have yet to be paid.  Get them in the mail and send them straight to the binder until you have time/money to pay them!  Do not stop at the stairs, night stand, purse, or dresser!

2.      Schedule: Here I have a month at a glance calendar for each month where I write the name of the bill on the date that it actually needs to be paid.  When I’ve paid that bill, I highlight it.  I bought a cute Sugar Paper Calendar from Target but you can always print these off online for free.  This is my favorite section because I can visually see where I am and what’s coming up.  I also have a list of my bills paid more than one time per year (picture to the left) next to a box indicating what month they need to be paid in.  Once you've paid the bill, check it off! This is helpful because you can see the entire year at a glance.  Print this form out here!

3.      Paid bills: Here I have the set of 12 dividers but you may need more based on the number of bills you pay each month.  Each divider is labeled by a type of bill or company.  I have one for each of my credit cards, my car payment, my insurance payments, tuition, etc.  After I’ve paid the bill, I hole punch it place it behind its designated divider in consecutive order.

4.      Budget management: This is where I keep a hard copy of my monthly budget.  Not a necessity, but a helpful tool to keep alongside your bills.

5.      Other: This section is TBD.  Right now my receipts and online purchases are here.

Some users like to keep all the bills in the binder for the year and then file that entire binder away after the year is complete.  I think I’ll wait until the binder fills up and then file it away in my box as needed.  That is what is great about this system; you can customize and file however you’d like!  Not to mention, you can pick it up and take it with you wherever you need to go!  I was so excited about this that I even made my sister one, she is hooked!

Stay tuned for part 2: Managing my expenses!