Which One Is Right?
If you missed the Introduction to the Budget Series click here. We talked last time about how everyone has a budget in place already (even if it’s the ‘I’m going to ignore it’ budget) There are several types of budgets available, so what’s the right one for you? Well, that is as personal as what kind of toothbrush you prefer. If there was one cure-all, we’d all be using that system right now…
What I can do is give you options.
1. A simple spread sheet:
An Excel Spread Sheet is very easy to set up. Simple formulas will automatically calculate totals. Microsoft has a video tutorial found here for 2010 version of office. Here is a sample of what mine looks like (click image to enlarge)
Notice the monthly column… it has a small, but positive amount. My sample budget is in line and I will have an extra $20. I can choose to move this to a savings account, but normally I keep a small amount as a buffer in my checking. Weeks 1-3 have leftover money that will roll over to the next week. Week 4 is when my biggest expense are paid, so I’ll need the extra money from week 1, 2 and 3 to help out. I’ve been budgeting for a long time now. I can pretty closely guesstimate my monthly bills. If this is not the case with you, my spreadsheet would be difficult to use. I recommend starting simple with a written budget. Answer two questions:
- Whats coming in?
- Whats going out?
If there is more going out than coming in, you need to adjust some of the bills. This can be anything from cutting off the cable, not eating out or adjusting your grocery budget.
2. A budget software.
I like Quicken for home use. It’s easy effective and connects to your accounts to update them (if you want it to). That works for me because I forget to update. If you don’t update often, you’ll find yourself going through each line item to categorize them Mint.
3. A budget notebook.
This can be as simple as a piece of paper to a purchased budget book. An example is one from Dome. At my local stores these can cost from $10 to $30. I don’t know about you but purchasing one isn’t an option when on a tight budget. I do advise to look through one. Look at how it is set up and use that format for a homemade version. Take a standard notebook and tailor a written budget to your needs. Columns can be easily done with a ruler. Dave Ramsey also has wonderful forms you can download here.
4. The cash system.
More and more people are using this system. I do to a certain extent. I carry cash for gas, fun money and small unexpected emergencies. The idea of this system is to use envelopes to divide your money into preset categories. An example of categories are mortgage, gas, insurance, credit cards, groceries etc. You calculate your monthly expenses, divide them by the number of paychecks and then ‘pay’ each envelope when you cash your check. Example:
- Mortgage $600/4 paychecks=$150 is what I would need to add each week to my Mortgage Envelope. By the end of 4 weeks you have enough to pay the bill.
Once an envelope is out of money that’s it. If you use all of the cash in the grocery envelope, then you’re out of grocery money. No borrowing from another envelope or that bill may not get paid. This system works great for a lot of people. My problem with this type? My check is direct deposit. I would have to
- Week 1 paycheck -go to the bank and withdraw the cash (extra trip thus wasting gas for me)
- divide it up between categories (not hard to do) and keep all my cash at home (don’t like)
- Ok I just got paid again but its time to pay bills wait… do I need to get cash out of the bank… or do I leave it so I don’t have to…..
- drive to pay a bill when due or drive back to the bank to deposit said money so I can pay the bill
Simply put I get confused. I leave my money in the bank, divide it up on the spreadsheet and get out small amounts of cash (mostly from a debit device with cash back option).
Some people have used the envelope system and used ‘play’ money instead of real money. I know me though, I’d forget to move the fake cash around, creating seemingly endless supplies of money. Hmmm Sorta like a credit card….That’s never a good thing….