Budgeting: How?

Our budget is the single most important thing we do to control our finances. We have been following Dave Ramsey's method, and it has worked great for us. Our actual implementation of the budget is a little different, but it makes sense to us. I get paid every two weeks, and my wife gets paid on the 15th and 30th of the month. My paychecks fund the envelopes -- more on that later. Her paychecks fund rent, bills, and charitable giving. We write each paycheck we'll get that month in chronological order on a piece of paper, leaving some space below each to write the expenses that will be taken out of each one. Some of the bills haven't come in yet, but we use last month's bill to estimate this month's for purposes of writing this down. This is an example budget for the month of May:

Income: Wife paycheck (April 30): $100
Expenses:
Rent: $50
Electric bill: $5
Phone bill: $3
Water bill: $5
Savings: $37

Income: My paycheck (May 4): $80
Expenses:
Groceries: $20
Restaurant: $5
Gas: $12
Misc.: $15
Clothes: $12
Savings: $16

Income: Wife paycheck (May 15): $100
Expenses:
Giving: $50
Professional Society membership dues: $5
Cell phone bill: $4
Savings: $41

Income: My paycheck (May 18): $80
Expenses:
(Same as May 4, but I would write it out again on the actual budget)


This is our plan for the month. If things arise, we make the necessary adjustments as we go, but we try to separate things we want to change (like add extra $ to the restaurant budget) and things we need to change (electric bill turned out to be $6, so we only get to save $36). Note that in the budget, all of the money is accounted for. In the first section, we have $100 income, and $100 outgo (technically, we keep the savings, but ssssh! Don't tell that to our budget!).

Living by your budget is hard, and maybe impossible, to do at the beginning. But when we started, we desperately needed those "savings" amounts, so we stuck with it. Now it is second nature. We still sit down around the end of the month and write down the budget for the next month. If we know something is going to happen, like an out of town wedding, the related expenses become items that are written down in our budget. Sometimes we'll use gas, grocery, misc, and/or restaurant money that we have budgeted anyway to offset some of these costs so we can still have some good savings. How does that work? The "E" word.

Perhaps even more frightening than the budget is the envelopes! They give you paper cuts, the glue tastes bad, and now this. As you can see, in my fictitious world, my wife and I have agreed to budget $20 for two weeks of groceries, $5 for going out to eat, $12 for our car gas, $12 for clothing (guess who spends that), and $15 for those miscellaneous expenses that always seem to pop up. To the surprise of many people: yes, we do go to the ATM once my paycheck has been direct deposited. We look to the left, look to the right, and withdraw $64. We take this cash, and divvy it up into the envelopes as outlined in the budget. If there is money in the envelope, we are allowed -- guilt-free -- to spend it. But we better be smart, because once the envelope is empty, all we can do is count down the days until my next paycheck...

A common reaction to this horrific story is, "WHAT?? But...what if we run out of grocery money? Won't I starve to death? Trees are cut down to make envelopes!! And the glue from envelopes killed George's fiancee on Seinfeld!!..." and other things about the world ending. I can think of two responses to this:

1. Be realistic with the amounts you decide upon. The point is not to starve you to death, but to give you the sense that your money is not bottomless. You may even make smarter decisions at the grocery store that could help your overall health (Honey, why can't we get 5 packs of Oreos???).

2. Sometimes it's good to be hungry.