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The Envelope Method
This 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: for example, car payments, telephone bills, monthly rent, and so on.
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 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 basic ideas behind this system are good ones: money is reserved "up front"
for expenses and discipline is enforced in following an established budget. 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. Can't you just picture someone breaking into your
home to find a collection of delicious, money-filled envelopes to choose from? 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" Method
This 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" Method
This system is an attempt to put some control on the "wish-list" method. 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.
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?
Perhaps the biggest annoyance with this type of system is the constant attention it
requires. Imagine being at a soda machine, and needing to pull out and make entries on a
list before you can deposit a few coins!
"Multifarious" Forms
Have you every seen those "budget books" that are pages and pages of charts to
fill out? 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 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 chart your pennies with the
complexity of mapping out the night sky!
There must be a better way!...
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