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Why Budget?
Our Budget Book
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The Envelope MethodThis system has been around for a long time and has been used by many people. The idea behind this method is to use envelopes to divide your pay into categories, with each category targeted toward a specific expense. To use this system, you would obtain a stack of envelopes, and decide what expenses you wanted to budget for. Then, one envelope would be allocated for each expense, and you would write the amount of the expense on the front of the envelope. Come pay-day, you would put the appropriate amount of cash in each envelope. The money would then stay in the envelopes until the time came to pay the corresponding bill, at which point the funds would be taken out and used. The Pro The basic idea behind this system is good one: money is reserved "up front" for expenses and discipline is enforced in following an established budget. The Con The major problem with this method, of course, is that it was designed for a time when most transactions were handled in cash. People received pay envelopes containing bills and coins, and the folding green stuff exchanged hands for most purchases and payments. In today's world of checks, credit cards, and electronic banking, such a system is a nightmare. You would spend an enormous amount of time making cash withdrawals and deposits. Safety is another concern. Even worse is the fact that money sitting around in envelopes isn't working for you. Instead of just laying there, gathering dust, you want those funds out there making more money. The "Wish List" MethodThis system can be simply described as "good intentions, bad results." The basic scenario here is that a family sits down and agrees on "spending limits" for certain categories of household expenses. "We won't spend any more than $450 a month on groceries" they might say. All of these decisions are carefully documented on paper. That done, the list is carefully filed away, and the family goes out and begins their spending. The problem here is there is no easy way to enforce the budget plan. When someone takes a trip to the grocery store, they have no idea how much they are "allowed" to spend. Furthermore, rarely do grocery bills come out to exactly $450 a month. If the family spends under that amount, the extra is never seen or heard from again. If they go over budget, where does the extra money come from? Soon, the frustration of not being in control of the situation sets in, and the list is forgotten. The "List-in-the-Pocket" MethodThis system is an attempt to put some control on the "wish-list" method. The Pro Instead of filing the "wish list" away, the family carries it around in pocket, purse, or wallet. Then, every time some money is spent, the amount is deducted from the appropriate category. With this technique, some feedback is available as to how things are going. The Con But still, there are problems. What does the family do if they need gasoline, and there is no money left in the gasoline budget? What if both husband and wife happen to stop at the grocery store while running separate errands? Do they carry separate budget lists? Do they have to spend time reconciling their lists at the end of the day? Charting MethodHave you every seen those "budget books" that are pages and pages of charts to fill out? The Pro On the one hand, the purpose of these is to get you to write down everything you spend. That, in and of itself is a good education because you'll see exactly where your money is going. In many cases this will surprise you enough that you'll change some behaviors. But to record your every move for an extended period of time is overwhelming. Rarely does anyone continue the resolve. The Con The reality too, is that simply "tracking" your expenditures is not a budget. It is only half of the equation. The other half is to reserve and plan for the spending "up front." The dictionary definition of the word "budget" is "to plan in advance, the expenditure of." It is not "simply write down what you've already done." And furthermore, there is no reason to have such complexity. There must be a better way!... Next: New Budgeting Concepts |
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