Most countries try to follow a sound fiscal policy and while it seems that more often than not, their polices do not work and they are constantly in deficit that same leeway is not allowed at an individual level. The first and best method of ensuring that you are staying on top of your finances is to have a budget. While this is a word that often scares people due to its negative connotations, if done correctly having, keeping and maintaining a budget can grant you a significant amount of financial freedom allowing you to live your life on your terms.
ENVELOPE BUDGETING
There are many different types of budgets out there but the one that I have always had the most amount of success with is something called “Envelope Budgeting”. Popularized by Financial Guru Dave Ramsey it is actually a really old fashioned method of money management. Envelope Budgeting works by “giving all of your dollars a job” – what this means is that you actually assign your funds to specific categories (or envelopes) BEFORE you get paid. By doing this you always ensure that the funds you need on a given day are in the right place and available instead of having to resort to Credit Cards or the equivalent.
Many people dislike budgeting as they fear that it will restrict their lifestyle and enjoyment but by using a little forethought and planning, this can actually be circumvented and avoided and if done correctly can help you amass and grow your money in quite significant ways.
HOW DOES IT WORK?
Explained really simply again? Take a piece of paper and write down all of the main categories your spending goes towards – things like Groceries, Car Insurance, Home Insurance, Mortgage/Rent etc… – and beside each of these categories write down the amount that you spend on a monthly basis. Make sure that you are adding up the amounts spent as you go along as your total spent should not exceed the amount that you are going to be paid as income. It does not have to be 100% accurate in the first month and in fact I would be surprised if it is if you have not had a budget before. Do not worry about this as one of the key things to having a budget is maintaining it so you will have a chance to improve it in later months. Now with your list of categories and amounts in hand, get a bunch of envelopes and label each one with the same names that you used in your categories and as soon as you get your next paycheck split up all the funds into the appropriate envelopes. That is literally it – I told you it was easy – but … as you are probably thinking, carrying a wadge of cash with you wherever you go is probably NOT the best solution so what can you do?
HIGH TECH TOOLS
There are actually quite a few tools that you can access and use that utilize the envelope methodology under the covers. One of the more expensive options is a product called Mvelopes. It not only ties into your bank accounts keeping your information up to date at all times, but also allows you to pay all of your bills through the same tool simplifying your life. In addition as it is a web based product it is available anywhere which can make things quite a bit easier if you are not able to get access to your computer. Mvelopes however is very much a US centric product and the fact that it does not support any UK banks does make it a little less useful to those in other parts of the world.
Another online option is a product called NeoBudget – its interface in fact looks like a series of envelopes which really pushes home the whole idea, but it does not have the integrated banking function that Mvelopes does. To input data into NeoBudget you can either import them from a .qif or .qfx file or manually input them and assign the relevant category. With a free account available (with some restricted features) it is actually worthwhile giving NeoBudget a try.
Finally another option worth considering – especially if you are a bit wary of inputting all of your bank information into an online tool – is a product called You Need A Budget or YNAB for short. YNAB is a desktop only application and supports all banks via importing of data into the tool itself. YNAB includes all the envelope essentials and if you do not feel comfortable with having your bank information online, then it is probably the option for you.
