Operation Live on a Budget

Thursday, January 15, 2009

So, here it is...the final installment of my resolutions. I know you've been waiting anxiously.

I'll be frank. Tyler and I aren't destitute, we don't worry about how we're going to pay our bills, but we're a single income family (for the most part), living in one of the most expensive cities in the country and we're usually scrimping by the end of the month, eagerly awaiting the next pay check. But this happens because we live and spend unconsiously. We swipe that card at the grocery store, rarely considering how we could cut back. We don't live extravagently, we just don't pay close enough attention to the things we're buying that we claim we "need."

So for five or six months in 2008, I tracked every dollar we spent and organized them into categories (bills, groceries, gas, eating out, etc...). What an eye opener it was to see what some of the totals came to! We rarely go to nice restaurants, but we found we were spending more than $300 a month eating out-- I'm talking Chipotle and Panera here! Crazy. As 2008 came to an end, I averaged out our monthly totals in each area. Using these numbers, we agreed on a more reasonable budget total for each category. In many areas, we agreed to cut the numbers in half. The money that we save every month goes entirely toward debt.

Now, here comes the fun part. Using a hybrid of philosophies from Suze Orman and Dave Ramsey (and wise council from my friend Lindsey), we're starting the envelope system. Each category gets its own envelope and once a month, the alloted amount is put in each envelope in cash. That's the budget for that category for the entire month. When the cash is gone, it's gone. Rent and most bills are payed straight from the checking account, but our envelope categories are groceries, gas, eating out/entertainment, miscellaneous (non-food related needs), and we each get $50 a month of "blow money," money we can do whatever we want with. Get coffee, buy a top from Forever 21, save it up for something bigger...whatever you want.

There are a few other steps encouraged by my financial counselors, including maintaining a $1,000 emergency fund-- money you have quick access to (but separate from your checking account) for those unexpected bills-- a car repair, an emergency room visit, etc... We've got our emergency fund and once our debt is payed off, we begin saving. Both Dave and Suze advocate saving 3-6 months of your total monthly expenses saved in the case of an unexpected job loss or economic downturn. We're not there since we're paying off debt, but that's the next step in our goal.

I've been told that the first few months of the cash system are difficult, but Tyler and I are both very excited at the prospect of paying off such big chunks of debt in a single month. I also feel empowered to know where our money is going each month instead of constantly thinking, "Where did that money go??" And I have such supportive friends and family that I know I can call for advice and encouragement. It will be a sweet, sweet day to be debt free.

Click here for more information on Dave Ramey's Baby Steps or here for a free download of Suze Orman's book, 2009 Action Plan. Offer expires TONIGHT at 11:59 pm CT on Oprah's website.

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