Budgeting your household the easy way

Here's a picture of my budget I keep in my wallet. It's not as complicated as it looks, but it does keep me from overspending.

There are all sorts of methods that work for different people. Dave Ramsey and others recommend the envelope system, in which you put the money for each category into its own envelope. You can only spend money for food, for instance, from the envelope marked Food.

My system is somewhat like the envelope system, except that I keep all my money in my wallet. The multiple envelopes might work if you carry a purse, but I don't, so trying to stuff envelopes in my pants pocket isn't going to work.

Rather than using envelopes, I just write down on a piece of paper how much money I have in each category and when I spend $24.93 on a shirt I subtract $24.93 from Clothes. (If you don't have at least $24.93 in your Clothes budget, you can't buy the shirt.)

But first, you have to determine how much money you'll put into each category. Lots of books and websites will give you about the same percentages, but I've found the best source to be the online budget calculator at Crown Financial Ministries. This calculator takes your income into consideration and bases the percentages on how much you can afford to spend on the fun stuff after the necessities have been taken care of.

First, enter your annual gross income, then enter how much tax is taken out. Since this site is a Christian ministry, there is a line for you to enter how much you'll give as a church offering, but if you don't contribute to a church you can enter any charitable gifts you do give or enter zero.

Once you've entered those three fields, the calculator will tell you how much money should be in each budget both annually and monthly. My only complaint with this calculator is that it doesn't give you weekly or bi-weekly amounts, and that's how most people get paid. I get a weekly check, so I just divide the annual amount by 52. If you're paid every two weeks, divide it by 26.

Next, take a blank piece of paper and write across the top all the categories you'll be spending (not saving or paying bills with). They should be: Food Auto Entertainment Clothes Tithe Medical Miscellaneous

Now, put whatever amounts the budget tells you underneath. (Some of these might get adjusted in a minute.) I put the weekly amount in a box, then write the amount I have underneath. Every time I get a paycheck I add the amount in the box to the total, and every time I spend from that category I subtract it. To the penny.

I'm an extremely late adopter and pay with cash whenever possible. One good thing about this is that you can watch the money leave your wallet and that makes it easier to not spend. But even if you do everything by credit or debit card you still can keep the list and subtract as soon as you buy, not when the credit card bill comes. Using cash, I'm able to reconcile any mistakes I've made by counting my money, then adding up all the categories on my piece of paper the day before every paycheck. Using credit cards, your budget might get skewed if you do some bad math or forget to record a purchase. Over time, this can get you way out of whack.

The money that goes into Housing, Insurance, Savings, Investments and Debt, should go into your bank account. Savings should go into an account that earns interest, though you should keep about $1,000 in your checking account for emergencies. Investments should go into interest-bearing accounts, too, and should be untouchable, as it is intended for your retirement. (If you have a 401k deducted from your paycheck, whatever comes out of it that is your contribution and not the company's match should be considered a portion of this category. Say you've got $20 in your Investments budget, and pay $17 into the 401k, you still have $3 to put into the bank.)

Regular bills
Now that you've got your budget in order it's time to tally up your bills.

Get a second piece of paper and list everything you pay on a regular basis: your utilities, Internet, cable or satellite and mortgage or rent. These aren't just monthly bills; put down your car insurance or anything else that is paid quarterly, bi-annually or annually. (Anything that isn't paid monthly should be converted to its monthly equivalent on your list.)

Add them up and you have your monthly expenses. Next, multiply that by 12 to get the annual number and divide it by however many paychecks you get per year, 52 or 26. (If you are paid monthly you already have the right number, so don't do anything.) This number is how much you have to deposit into whatever account you pay your bills from. If any bills change significantly from month to month you can either recalibrate when they change, or get the average from the last 12 months.

Making corrections
I said earlier you'd have to make some fixes to that original piece of paper. Here's how you do:

Things like cable TV come out of your entertainment budget, but you've calculated them in your monthly bill list. Go through that list and find things that belong on the other budget and subtract them. For a $60 a month cable bill, multiply by 12, then divide it by your number of paychecks if it's 52 or 26 and subtract that much from Entertainment. Do that for everything on the list and for things deducted from your paycheck.

You've already handled the 401k contribution on your paycheck, but look at any part of your health insurance that you pay and deduct that from Medical and take any parking fees from Auto.

That should have you set. Just add bonuses or overtime to Miscellaneous.

Did I say this was the easy way? It may not seem easy, but it's far better than spending beyond your means.