247: An Essential Skill (Friday, September 23)

One of the most essential skills for successful financial management--or even life, for that matter--is the ability to budget. Budgeting, or lack thereof, is part of the reason our country is in a financial mess; it could mean the difference between staying on top of your bills and being engulfed by them.

My budgeting is generally very loose: I live off one paycheck a month and wherever it ends,  it ends. But there are times when I need to stick to a stricter budget and when that happens, I use The System, a bunch of envelopes that keeps me honest. Most people have heard about the jars, but I find that they aren't practical; who walks around with a bunch of jars?

How The System Works:

1. I make envelopes for each category of my expenses: Rent, Grocery, Commuting, Entertainment, Bills, Miscellaneous (doctor visits, medication, etc.)
2. I put the budgeted amount for each category in that envelope. For Rent and Bills, I use checks. For the others, I withdraw cash and keep it in the envelopes.
3. I leave my debit card at home and only carry the envelopes. 
4. I only use money from the appropriate envelope.
5. At the end of the month, if there is money left over in any envelope, I add it to my savings.

The System has been successful every time I needed to keep track of my expenses. If you have difficulty figuring out where your paycheck goes each month, or have difficulty meeting your monthly financial obligations, I definitely recommend this method.