Thursday, December 29, 2011

Painless Budgeting Redux

Miss MoneyPenny was going over her budget this morning and realized that it is going to be slim pickins in the old household until payday.  Eeeks!!  The holidays sure are spendy, but if you have adopted the MoneyPenny Method, you may be broke, but at least you don't have credit card debt.

This might just be a good time to revisit my budgeting method, being as it is just about the new year, and that is a good time to start managing your money, as well as start your new diet.  Miss MoneyPenny lives on library wages and a small check for doing the bookkeeping for Weathers Plumbing, but even if you have an endless stream of money, you want to get the most out of it, don't you?

I keep track of my whole financial life in a cheap three column ledger, pictured above, divided into four parts.  Part one is for all money that comes in.  I date it, indicate where it came from and how many hours worked.  This is just for my information and includes paychecks, rebates, Ebates, annual Costco check, tax refund, etc.

Part two is my monthly budget and I have a page for each category.  This will take some time to figure out, but is really worth it.  I strive for balance, not the absolute least that I can live on.  Once you get this nailed down, you are ready for the next step.

Part three is really what makes this system work and I do find it to be almost painless.  I have this part divided into five categories - yours will most likely be different, depending on your lifestyle.  These are the kinds of things that drive us to use our credit cards and never get out of debt.  I used to think that replacing my washing machine was an emergency, not just regular household maintenance.  And Christmas - who could believe that it came around again in December, just like last year?

Anyway, you get the idea.  My categories include medical, auto, vet bills, holidays and home maintenance.  These are the areas that can cause trouble for me, so I try to be prepared.  This is where your monthly budget comes into play.  Once you have that established and it is working well, you take the excess and start dividing it among your categories.  This does take some time, depending on your income.  I have only had mine fully funded a couple of times, because life just keeps happening, but I've got it covered when I get hit with that big vet bill or car insurance.

Miss MoneyPenny paid the minimum on the credit cards until this fund was up and running.  I know that this goes against everybody else, but how else will you ever get out of credit card debt if you have to keep using them?  Once your categories are funded enough to start taking over the "emergencies" you can start paying those cards down.  I started with the card that had the lowest balance, paying it off first, then taking that money and applying it towards the next one, still paying the minimum on the last one until I was at a zero balance.  That felt really good.

Part four keeps track of my savings.  Remember that you always pay yourself first.  Period.

I know that you don't think that this is painless, but it doesn't hurt near as bad as debt.  Give it a try and we will talk in six months.  I guarantee that you will think differently about your money.  If you have questions, leave a comment and I will get back to you.

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