Here’s a quick rundown of how we organize our finances and our financial documents -

Extremely Important Documents -

We keep our tax returns, marriage license, birth certificates, car titles, etc. in a fire-proof safe.  I have friends who keep such documents off-site in a safety-deposit box.  The fire-proof safe works for us.  I also have electronic copies stored on a removable hard drive.

Important Documents -

We keep cleared checks, bank statements, and other important documents under lock-and-key in a filing cabinet.  I have an accordion-style file folder for each year’s documents.  When a new year begins, I simply store the previous year’s folder in the filing cabinet and start a new folder.  Bills, checks, bank statements, etc. are filed alphabetically.

Electronic Documents -

For bills or other documents that I receive electronically, I keep a few in a folder on my computer’s hard drive, and store back ups on a removable USB hard drive.

Online Accounts -

In my browser, I have created a bookmarks folder labeled financial accounts.  I have links to all of my financial accounts saved in the financial accounts folder.  When I want to pay a bill online or take a look at my retirement account, I simply select the financial accounts folder, and click open all in tabs.  I then have access to all of my accounts.  I can log in to as many accounts as I need.

Inventory of Accounts -

I have a list of all of our financial accounts (places where we have money saved).  I have a printed copy and I have a copy on my hard drive.  Click here to view and download a blank copy of the inventory of accounts that I use.  I update this inventory once per quarter.  If you use this inventory, be sure to store it in a place where you (and your spouse) and only you (and your spouse) can access it.

Budget -

I use a the very simple, easy to use You Need A Budget software to manage our household budget.  Click here to read about the zero-based budget method that we use.  (YNAB is a long-time sponsor of No Credit Needed.  I’m more than proud to promote their products and I use their pro version every day.)  It usually takes me less than 30 minutes to create our budget, and less than 10 minutes per week to actually “manage” our finances.

Cash -

I do not like credit cards, and there are times when I do not feel like using my debit card.  I am a big fan of the cash management system known as the envelope system.  Click here to view a short video where I explain how the envelope system works for me.

The Process -

At the beginning of each month, I’ll sit down and create a monthly budget.  My wife will look it over, and we’ll make any changes that she suggests.  My wife gets paid at the end of the month, so on the 1st or 2nd of each month, I’ll deposit her check in our local bank.  Any monthly bills are immediately paid, via online bill pay.  Cash is “deposited” in our envelopes.  Any paper bill stubs that we might have are filed away in the accordion-style file folder.

Two weeks into the month, I receive my paycheck.  I deposit it in the local bank and then transfer any money allocated for savings to our ING Direct savings account.

As I receive bills throughout the month, I place them on a little table in our kitchen.  One week before the end of the month, I’ll open them, make plans to pay them, and file any that need to be filed.

My goal -

My goal is to keep my life (and my mind) as uncluttered as is possible.  I like for things to be “just so”.  Before I began to reduce my debt and work on my finances, I was extremely disorganized.  Having learned my lesson (a hundred times over), I know strive to be very organized.  I want to be able to spend my time on the more important things (people) in my life.  So, I have put a lot of work in to creating some systems that work for me.  Hopefully, you’ll find some systems that will work for you.

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How We Organize Our Finances

There are dozens of budgeting products on the market.  I’m partial to the You Need A Budget system, but there are other great systems available.  Find a system that works with you, fine tune it to meet your needs, and then use your budget as a tool.

After selecting a budgeting system, it’s important to create specific budget categories.  When I first started budgeting, I had way too many categories.  I tried to be too specific.  Instead of managing my money, I just ended up spending time working on my budget.  If you have too many (or too few) categories, you might grow frustrated with your budget, and you might simply ditch it altogether.

What Works For Me – Budget Categories

I divide my budget into three major categories – spending, saving, and giving.  (I create a budget based solely on our household take-home pay.  In other words, I do not include pre-tax retirement contributions or employer deducted health insurance premiums.  Also, I live in a house provided as part of my compensation.)  I then divide the three major categories into the following budget categories and sub-categories.

Spending

Utilities

Electric Bill

Cellular Bill

Telephone Bill

Satellite Bill

Medical

Medical Bills

Medicine

Child Care

Daycare

Baby Sitters

Food

Grocery Store

Eating Out

Entertainment

Family Nights

Miscellaneous Spending

Clothing

Automobiles

Gasoline

Routine Maintenance

Saving

Retirement

Roth IRA 1

Roth IRA 2

Education

ESA 1

ESA 2

ESA 3

Automobiles

Automobile 1 Replacement

Automobile 2 Replacement

Automobile Repairs

Home

Furniture Replacement

Appliance Replacement

Future Home Purchase

Insurance

Automobile Insurance Premiums

Disability Insurance Premiums

Renter’s Insurance Premiums

Additional Savings

Giving

Church

Tithes

Offerings

Special Offerings

Gifts

Donations

Presents

Basically, I have 15 budget categories, with most categories broken down in to two or three sub-categories.  (Once in a while, I’ll add an extra category or two, depending on circumstances.  For instance, for a long time, I was saving for a new lawn mower, so there was a specific savings category labeled lawn mower.)

For me, and my family, it works best if we limit our number of budget categories.  I find that this makes things a bit more manageable – and more user-friendly.  (If you have irregular income – and most folks do – I suggest you read this post:  How To Create A Budget If You Have An Irregular Income.  You’ll find information for setting up a budget, even if your month-to-month income fluctuates.)

What About You? -

I’d love to hear from you, my awesome readers.  How many budget categories do you use?  Have you found that you like a super-simple system, or do you prefer something much more complex?  Leave comments here and / or connect with me via Twitter.

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What Works For Me – Budget Categories

Before you create your next budget or monthly spending plan -

1.  Track your spending for one month.

Use a spreadsheet, pen and paper, or online software, and track your spending for one month.  Track all payments – including those made by check, debit card, cash, (and credit card, if you choose to use one).  Remember to also include any payments that are automatically withdrawn from your checking / savings accounts.  (My wife and I use the You Need A Budget software to track our expenses and manage our monthly budget.)

2.  Create a detailed list of non-monthly bills / expenses.

Remember, for a budget to really work, you need to plan for non-monthly (irregular) bills and expenses.  For instance, you may need to pay annual life insurance premiums, twice-yearly automobile insurance premiums, and property taxes.  These bills do not arrive in your mailbox each month, but they still need to be included in your budgeting plans.  Click here for several options for how to deal with annual / irregular billing cycles.

3.  Open a free checking account with free online bill pay.

I could not manage my finances without a free checking account and free online bill pay.  Instead of writing several checks a month, I can go online, schedule payments, and be done with paying bills in a matter of minutes.  It helps to bank with an institution that integrates with your budgeting software of choice, or one that allows you to download transactions in several different file formats.

4.  Open a savings account.

I use an online savings account – one that allows me to quickly transfer money, via it’s transfer system, to and from my online checking account.  (If you would prefer one account, consider an interest-bearing checking account, like the ING DIRECT Electric Orange Checking Account)  You need an account where you can earn interest, while temporarily saving money for non-monthly bills / annual expenses.  I happen to have three accounts – a checking account at a local bank for day-to-day transactions, the Electric Orange account for online bill pay, and the online savings account for stashing cash until annual bills are due.

5.  Consider a cash-management system that will work for you.

I am comfortable carrying cash, but some may not be.  Find a cash-management system that you like and use it in connection with your budget.  My wife and I us the envelope system.  (Click here to watch a video tutorial, outlining how we use envelopes to manage our cash.)  You may choose to use a debit card, or even write checks, instead of using cash, but be sure you have some sort of system set up that helps you account for how much cash you need and spend.  Learning to properly handle cash, without wasting it, is one of the first steps in the life of a maturing home-finance manager.  Stop using the excuse that you “spend more with cash”.  If you can learn to be responsible with the $20 in your wallet, you can learn to be responsible with the $200,000 in your retirement account!

6.  Establish a budget-creation routine.

Determine when you will create your monthly budget.  Determine when you will discuss the monthly / weekly budget with your spouse.  Be specific and write the date / time on your calendar.  Instead of paying bills “whenever you have the chance”, build some time into every week for handling personal-finance related chores.

7.  Balance your checkbook / reconcile savings account.

It almost goes without saying, but before you can create a budget, you need to know how much money you have on hand.  Also, consider taking a look at any other accounts you might have – retirement, education savings, etc. – just to make a note of current balances.

8.  Determine your next financial step / goal / plan.

If you are trying to build an emergency fund, you need to have an emergency fund category in your budget.  If you are trying to get out of debt, you need a debt reduction category in your budget.  If you are trying to fund your Roth IRA, you need a Roth IRA category in your budget.  You get the picture.  Also, remember, after you get out of debt, you can then remove that category from your budget, and replace it with some other category.  The point is – Incorporate your current goal within the budget.

9.  Prepare yourself to succeed (and fail).

If you have never lived on a budget, prepare to be amazed by how in control you will feel, once you start using one.  Also, be prepared to fail, and feel frustrated, once your “perfectly” detailed plans fall completely apart.  The truth is, none of us can tell the future, but we can make some pretty decent predictions, based on past expenses.  For some, budgeting is easy, and becomes easier.  For others, budgeting can be a struggle, and it takes time to find the groove.  Be patient and enjoy the process!

10.  Understand how to budget with irregular income.

For most people, even those with regular monthly income, it’s a good idea to learn how to budget with irregular income.  For instance, most will need to know what to do with year-end bonus or a tax rebate check.  For many, especially those who work on commission, it’s critical to learn how to budget when on an irregular income.  Click here to read an in-depth article about how to create a budget when you have an irregular income.

I have used the above when creating my own budget.  My wife and I have been living on a budget for more than four years.  I will remind you, I am not a financial planner, and the above simply outlines what works for us.  Before making any financial decisions, consider consulting a qualified financial adviser or planner.

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10 Things To Do Before Creating Your Next Budget

Do you struggle to stick to your budget?  Have you tried to live on a budget, only to throw your hands up in frustration and give up?  Think you way through the following list, and see if you can find a few solutions for your budgeting woes.  Remember, in many cases “the perfect is the enemy of the good“.  Our goal, when budgeting, is to create a realistic spending plan – one we will actually follow – and not some elaborate spending plan that will only serve to frustrate.

Problem – Too Many Categories

Let’s face it, there are only so many charts, so many calculations, so many categories, and so many money transfers that the normal human brain can keep track of.  Even with modern budgeting software, creating an overly-complicated budget can lead to stagnation – especially if you are married to a spouse who favors keeping things simple.

Solution – Eliminate Unnecessary Categories

A simple example will best illustrate this solution.  Here’s a budget outline that has too many categories:

Groceries-

Vegetables-

Fruits-

Apples-

Macintosh-

Obviously, I’ve created an exaggerated version of the problem, but you see my point.  A budget that is too specific, too detailed, will eventually drive its user bonkers.  Instead, a single category, labeled groceries, would suffice.

Our goal is to create a budget that has just the right number of categories – enough to effectively track our spending, but not so many that we feel overwhelmed.

Problem – No Plan For Unexpected Expenses

Here’s the reality.  No matter how well you plan, during a typical month, you will have to deal with unexpected, unplanned-for, expenses.  This is simply a fact of life.  There’s is no possible way to predict the future, so your budget needs to have some room for life to happen.

Solution – Have A Miscellaneous Expenses Category

Instead of trying to predict the future, have an  I-have-no-idea-what-we-might-need-but-I-am-pretty-sure-we-are-going-to-need-a-little-extra-somewhere-category.  Of course, you want to be realistic, and the amount of money allocated to this category should be reasonable.  Remember, this category isn’t for emergencies.  That’s why you have an emergency fund.  This category is for unexpected expenses – things that just pop up in the course of life.

Problem – More Than One Person Lives Here!

For those of us who love numbers, spreadsheets, and calculations, we can easily find ourselves frustrated with our, how shall we say, less than intense spouses?  On the other hand, for those who hate talking about (or even thinking about) money, the word budget ranks right up there with root canal on the list of most hated words.  Need I even mention the struggles that two spenders will face, when trying to live on a budget?  And think of the frustration if two savers – two math-nerds- happen to live in the same house!

Solution – Agree That Budgeting Is Important

I know that it is difficult, but at some point, each spouse must agree that living on a budget is important.  Even if you can’t decide, right away, what the proper budgeting technique should be, at least agree that living on a budget does matter!  For more on this subject, read this article I wrote about how to avoid arguing when talking to your spouse about financial matters.

Problem – Poor Cash Management

Certain budget categories require cash, and many people have poor cash-management skills.  In other words, if they have cash in their pockets, they will spend it!

Solution – Try The Envelope System

I know, I know.  It’s old fashioned, it’s old school, it’s hokey.  Guess what?  It works!  When we first started to live on a budget, my wife an I both struggled with cash management.  After using the envelope system for just a few months, we were able to control our spending.  Click here to view a video I made describing how to use the envelope system to manage your cash.

Problem – Refusal To Sacrifice

Your budget will not work – it cannot work – until you are willing to make some sacrifices.  You must give up certain hobbies, certain products, certain services, and certain wants, if your budget is going to work.  Some of these sacrifices will be temporary, and some might be life-long.

Problem – It’s On The Computer

Your budget will be useless if it simply sits on your computer’s hard drive, especially if you spouse never uses said computer or looks at said budget.

Solution – Print It Out

When we first started, we printed three copies of our budget, and place them in strategic places throughout out our house.  Remember, this isn’t one person controlling the budget, and giving the spouse money.  For couples, we need two people working together, equally focused on living on a budget.  Print that sucker out so that you can see it!

Solution – Be Resolved

Determine, before the month begins, that you are going to do your very best to follow your budget.  Refuse to give in to old spending habits and thoughts of just this once.  Remember, your future depends on the choices you make today.  If your budget fails, let it fail because of a miscalculation, not because of frivolous, unnecessary spending.

Problem – One Bad Month Leads To Surrender

I’ve had one.  You’ve had one.  A bad month – a month when expenses rose, unexpectedly, or income shrank, dramatically.  We have all had to deal with a month where our budget was covered in red, and our best-laid-plans simply fell apart.

Solution – Regroup And Move Forward

Instead of giving up, dig in.  The reality is, even the best budgets fail, not because the budget is flawed, but because things just happen.  Maybe you felt frustrated and you spent more than you should have in several categories.  Maybe you just decided that you were too tired to enter a few transactions, your calculations got all our of whack, and now you just don’t feel like dealing with the darn thing.  Regroup!  There’s no better time than right now to pull yourself together and get back on track.  It’s never too late to start over.

Problem – Unrealistic Expectations

Whenever I look back at some our first budgets, I always smile.  For the first few months of our budgeting experience, we always underestimated how much we would spend on groceries, and we always overestimated how much we would have available for debt reduction.

Solution – Live, Learn, Modify

Over time, as you get the hang of it, living on a budget becomes second-nature.  After a few months, you’ll be able to dial in the correct amounts, and things will go much slower.  Remember, during those first few months, you’ll be learning to live on a budget.  If you are anything like me, it will take a while to get the hang of it.

Before publishing this post, I opened the floor up to some of my pals over at Twitter.  Here are some of the struggles that they mentioned -

MrsMicah - I think part of it is because we don’t plan well enough beforehand.  We don’t include one-time things like dinner w/friends.

annmvolk – It’s because I don’t post mine or think about it after I’ve done my “ideal” (=unreal) budget; I also forget irregular expenses.

thesomedayguy – We fail to remember exact amounts we’ve budgeted–having a tracking tool like Mint would be useful!

EdenJaeger – I can stick to a broad budget without trouble, but when I try to get too detailed I start to fail.  Life is too unpredictable for that.

ManVsDebt – We fail because we try to make them too complex. The more simple it is, the higher the probability that you form a habit early on.

dee_wilcox – Unexpected expenses (emergency medical, auto, etc)…if the emergency fund isn’t large enough to cover it.

msimonkey – I sometimes fail to stick to my budget when I forget to plan for special events.

tmsullivan – Most people don’t see their budget. There is no visual reminder that says “Entertainment: $100″ and a running tally of the expenditures.

MyMoneyMinute – I think budgets are time-intensive the first 3 or 4 months b/c you have to tinker them, and this discourages people and they quit.

SurburbanDollar – It could be that both spouses fail to work together on planning the budget so they will fail to stick to it.

tanneio – We let our emotions take over. We feel sad / hurt / deprived and want to go for an easy fix so we splurge.

freefrombroke – Budgets can be too constricting in that we don’t want them to tell us what to do.

stretchydollar – It’s hard to be consistent – sometimes laziness just takes over.

Final notes –

My wife and I use You Need A Budget software to manage our household finances. You Need A Budget is a long-time sponsor of my site, and I strongly recommend their products.

Twitter is an awesome resource.  In less than ten minutes, I received the above mentioned Tweets.  If you haven’t done so, feel free to follow me and send me a Tweet.  I want to thank all of those who replied.

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Reasons We Fail To Stick To Our Budget – With Twitter Input!

When it comes to managing our personal finances, it’s very easy to feel overwhelmed.  Here are some steps we’ve taken, over the past four years, so that we feel in control.  We have -

Established An Emergency Fund

I cannot overstate the value of our emergency fund.  On several occasions, we have had to deal with unplanned-for expenses.  Instead of borrowing money to cover said expenses, we have been able to dip into our emergency fund, and cover the cost of those expenses.  While getting out of debt, our emergency fund balance fluctuated between $1000 and $2000.  Now days, the fund sits right at nine months’ worth of expenses.  We keep our emergency fund in our ING DIRECT Savings Account. Dedicating ourselves to maintaining an adequately funded emergency fund may have been the smartest financial decision we have ever made.

Eliminated Certain Unnecessary Expenses

Please note the use of the word certain.  We still spend money on things that we don’t need, but we have eliminated much of the truly wasteful spending from our lives.  Finding a healthy balance between wants and needs can be difficult, but finding a healthy balance between acceptable and wasteful is not.  I’ll be brutally honest.  We used to waste a lot of money, buying things that we absolutely did not need, and in many cases, really didn’t even want, just because we thought we had to.  Now, we think about our purchases, and we try to apply some common sense to our decision making.

Eradicated Our Debts

The blog heading says it all – Debt Reduction Rocks – We Are Living Debt Free.  Four years ago, we decided to get out of debt, and we worked very hard, through several ups and downs, until we accomplished our goal.  I remember, as a kid, having to walk home from school.  I also remember the relief, even the joy, that I would feel, each day, when I finally reached our backdoor and was able to drop my backpack, filled with books, from my shoulders and onto the kitchen floor.  That’s what being debt free feels like.  My burden, which felt so heavy at the time, is gone.

Established A Budgeting Routine

If you want to feel less overwhelmed, and more in control, start living on a budget.  A good friend told me that, several years ago, and I wish that I would have listened to him then, instead of waiting so many years to get my act together.  We use a zero-based budget, every penny is accounted for, and our finances are so much easier to manage than they were in the years B.B.  (Before Budget)  We also created a filing system for our important documents, and committed ourselves to maintaining balanced checkbooks.

Eliminated Credit Card Use

We stopped using credit cards, and we really haven’t missed them.  Sure, we forgo some of the cash-back offers that certain credit card companies provide, but we more than make up for those missed rebates with the peace-of-mind we have, knowing that we will never again have to worry about interest charges, late fees, or lost payments.  I’m not trying to convince anyone to give up their credit cards, but I will say, if you are tired of your credit cards, or you feel that your credit card usage is out of control, it is possible to live without the silly things.  Personally, I think that everyone, during their debt reduction phase, should give up their credit cards, if only temporarily, so as to break the cycle of charging-paying-charging-paying-charging.

Eradicated Negative Voices

Okay, so maybe we didn’t completely eradicate them, but we did choose not to listen to them.  Instead, we surrounded ourselves with like-minded, positive, forward-thinking people.  I started this site, and connected with debt reducers from around the world.  As a couple, we found friends who were willing to give this debt reduction thing a shot, and we shared our journey with them.  Celebration and accountability have been so important to our success.

Eliminated Some Of The Stress

Let’s face it, personal finance management will never be completely stress-free, but we can work hard to eliminate some of the stress from the process.  Over the years, I have created a financial inventory for my wife, so she’ll know where everything related to our finances is located, should something happen to me.  I have also updated our term life insurance coverage and we now have up-to-date wills, stored in a safe location.  Taking care of these things, just knowing that they are done, really removes so much of the stress associated with managing our finances.

What about you?  What steps have you taken / are you taking, to gain more control?  Do you still feel overwhelmed?  What are you struggling with?  Where are you finding success?  Leave a comment and let us know.

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From Overwhelmed To In Control

For the visual-learners in the audience, I have diagrammed the flow of my money.

Regular income is deposited into my primary checking account.  Scheduled monthly payments are made, and allocations for non-monthly scheduled payments are then deposited in my online savings account.

Irregular income, such as it is, is deposited into my primary checking account, and used, if needed, for scheduled monthly payments.  If not needed for scheduled monthly payments, money will be transferred from my primary checking account to my online savings account.

Business income is deposited in my business checking account.  All business income is then transferred to my online savings account, set aside for non-monthly payments and long-term savings.

Any non-monthly scheduled payments are made from my interest-bearing checking account.  Money necessary for non-monthly scheduled payments is transferred from my online savings account to my interest-bearing checking account, as needed.

Contributions to Roth IRAs and Education Savings Accounts are made from my interest-bearing checking account.  Again, these contributions are first transferred from my online savings account, to my interest-bearing checking account, and then a check is written for each contribution.

I have it set so that I make all of my scheduled monthly payments on the first day of each month.  As soon as payments clear, I can then transfer remaining money to my online savings account, leaving a cushion in my checking account for unforeseen-expenses.  Not included in this diagram, but very important, is my envelope system, which I use for managing my cash, to pay for budgeted items like groceries and gasoline.

I am a big fan of the The ING Direct Orange Savings Account and I use it as my online savings account. I also use ING’s Electric Orange as my interest-bearing checking account.  Having both accounts with the same company, it’s very easy for me to make instant transfers.

For more about scheduled monthly payments and scheduled non-monthly payments, please see this recent article about how to create a zero-based budget.

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Diagramming The Flow Of Money

My wife and I use a zero-based budget to manage our finances.  Each month, we sit down, discuss the next month’s expenses, and create our spending plan.  Here’s how you can create your own zero-based budget.

1. Create a List of all Sources of Monthly Income

• Paycheck A
• Paycheck B
• Other Income A
• Other Income B
• Other Income C

I use after-tax income (net pay) when creating my budget.  For those who work as employees, creating a list of income sources should be relatively simple.  For those who are self-employed and / or have irregular income, things can get a little more difficult.  Personally, a portion of my income is regular (I receive a paycheck) and a portion is irregular (I receive income from my web business).  I use the zero-based budget to manage my regular income and another method for managing my irregular income.

2.  Create a List of This Months’ Expenses

• Rent / Mortgage
• Electricity
• Groceries
• Telephone
• Cellular Phone
• Automobile Payment
• Credit Card Payment
• Donations / Tithes / Giving
• Child Care

At this step, we are not concerned about annual, semi-annual, or other non-monthly expenses, unless those expenses are due this month.  We’ll get to those types of expenses in a minute.  For now, list your actual expenses for this month.  For categories that fluctuate, you will have to use estimations.  Be realistic.  We will also cover savings contributions and accelerated debt reduction payments in just a bit.

3.  Create a List of Non-Monthly Expenses

• Automobile Taxes
• Insurance Premiums
• Magazine Subscriptions
• Annual Memberships

These are expenses that might not be due this month, but you still need to plan for them.  Divide the amount of each bill by the number of months between the creation of your budget and the time your bill is due.  For instance, if you create your budget in March, and your life insurance premium of $200 is due in June, you will need to budget $50 per month, each month, so that you will have funds available to pay that particular bill when it is due.  After paying that bill, you will have another full year before you have to pay it again, so your monthly allocation for that particular category, in this case life insurance premiums, will decrease, because you will divide by 12 instead of by 4.

4.  Create a List of Savings Contributions and Accelerated Debt Reduction Goals

• Extra Payment To Credit Card
• Emergency Fund Contribution
• Roth IRA Contribution
• Education Savings Account Contribution

These are non-mandatory contributions to savings, after-tax retirement, and education savings accounts, as well as accelerated debt reduction payments.  For those who are getting out of debt, this is where you would list the extra payment at the top of your debt snowball, debt avalanche, or debt deluge.

5.  Subtract Total Expenses From Total Income

Your goal is to create a scenario where total income minus total expenses will equal zero.

If you subtract expenses from income, and you get a negative number, you need to decrease the amount you have allocated for expenses.  Consider decreasing non-essential categories, like eating out or entertainment.

If you subtract expenses from income and you get a positive, you need to increase the amount you have allocated for expenses, savings contributions, or debt reduction.  Consider allocating more for debt reduction or college savings.

There you have it.  That’s how we create our zero-based budget.  If you have any questions or suggestions, feel free to leave them in the comments section.  My wife and I use You Need A Budget software to create our zero-based budget.  I strongly recommend it and I’m proud to have them as a site sponsor.  For those new to zero-based budgeting, I suggest outlining your budget on paper and then transferring your numbers to the budgeting software of your choice.

If you haven’t done so, consider subscribing to No Credit Needed via RSS or email.

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How To Create A Zero-Based Budget

What does it take to build a solid financial future?  Money, a good plan, and rock solid determination.

Consider a recent article written by Jen from Beyond Mom.  I love the article’s title: The Budget Might Kill Me This Month.  Isn’t that awesome?  Trust me, I’ve felt that exact same sentiment several times.  I encourage you to read Jen’s article, and I think you’ll be impressed, just as I was, by Jen’s closing words -

It’s not super-fun, and it’s certainly not glamorous, but you know what…it will be worth it.

I think that’s how most of us feel about living on a budget.  It is so cool to see someone make a choice – the right choice – and focus on the future.  By the way, Beyond Mom is a member of the No Credit Needed Network and you can click here to view her most recent NCN Network Chart – beyondmom.

For our family of five, it’s extremely important that we live on a budget.  In fact, just the thought of living without one makes me nervous.  I need the structure that a good budget – a good plan – provides.  Personally, we use software developed by You Need A Budget to manage our household finances, and we really like it.  I’ve been using YNAB for several years, and I’m proud to have them as a site sponsor.

As you develop your budget, remember one thing.  Your budget will be useless if you are not determined to use it.  I can remember, years ago, before I got serious about getting out of debt, creating an elaborate budget.  I broke down categories into sub-categories, and sub-categories into sub-sub-categories.  I created short-term, mid-term, and long-term goals.  I averaged my payments, created scenarios for paying of my debts, printed out my budget, and placed in a brand new three-ring binder.  And there is sat.  The budget – my plan for changing my future – just sat there.  I spent hours creating it, and then I did nothing with it.  It was years later, when I finally decided to actually do something about my future, that my budget started to matter.  I had to find the drive, the purpose, the determination to put the numbers on the page into real life action.  Then, and only then, did I begin to turn my financial life around.

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A Plan And Rock Solid Determination

As the credit crunch continues, more and more people are learning to adjust to life without credit.  It’s been four years since I borrowed money or used a credit card.  Here’s how I live without borrowing money.

Budget -

I live on a budget.  My wife and I receive monthly paychecks and I receive irregular income from various sources.  I use the You Need A Budget software to create my budget and track my spending.  As I create my monthly budget, I’m able to think about the coming month’s expenses, and plan accordingly.

Many people, when dealing with personal finances, feel anxious and frustrated.  Budgeting can help with these feelings, because a realistic budget helps to remove some of the what ifs and replaces them with actual realities.  When you create your budget, you may not like the numbers that you see, but, at the very least, you’ll know exactly with what you are dealing.

Learning to live on a budget can take time.  Be patient.  It took me almost six months to get things right.  Eventually, creating a budget will become second nature and you’ll actually look forward to sitting down with your bills and hammering out your monthly plan.  Seriously.  Trust me!

Plan -

Sure, my budget helps me get through the month, but also create short-term and long-term plans.  Remember, you’re learning to pay CASH for every thing.  That new washing machine?  You are going to pay cash.  That newer automobile?  You are going to pay cash.  College for the kids?  Yep, you are going to pay cash.  So, you need to plan, plan, plan.  (Note, when I use the term cash, I mean that you are going to pay for these things, up front, instead of borrowing money and paying for them later.  The actual method of payment might be cash, debit card, online bill pay, or check.)

I have several short-term plans (and goals).  Currently, we are saving to buy new furniture, a newer automobile, and new appliances.  But, I also have long-term plans (and goals), including buying a house for cash and paying for our three kids to go to college.  So, even though we are debt free, and could spend our money foolishly, our plans keep us honest and frugal.  In fact, we have less spending money, now, than we did when we were in debt, because so much of our savings are allocated to future purchases.  (Of course, the cool thing is, even though this money is allocated, on paper, for specific future purchases, we could, in the event of a real emergency or opportunity, use this money for anything we wanted.  That’s what’s great about having money in savings.  It’s ours, and we can use it as we wish.)

Sacrifice -

There are no shortcuts.  If you want to have enough money in the future, you have to sacrifice today.  If I bought every gizmo and gadget that I wanted (and could, at this point, afford), I would never achieve my long term goals.  Right now, we live in a house that is provided as part of my compensation.  We really want to buy our own home.  But, our real goal is to pay cash.  So, we make a house payment, to ourselves, each month.  Even though I could buy name brands, I still buy generic, because getting out of debt was just the first step of a very, very long journey.

Focus -

It’s never easy to go against the grain.  When everyone else is buying new cars and upgrading to the latest and greatest, it takes a certain inner strength to be content with what you already have.  As recent events have shown, however, most Americans (and most politicians) would do well to learn a little fiscal restraint.  So, the next time everyone in the office goes out for lunch, proudly produce your brown bag.  When the newest cell phone hits the market, be content with the one in your purse that still works just fine.  If you can’t afford your lifestyle, make the changes necessary to bring your expenses into line with your income.

Side Note:  I’ve been living without borrowing money for four years.  I’ve also avoided using credit cards.  If you choose to use credit cards, and many do, just remember to pay them off at the end of the month, so as to avoid those pesky interest payments.  As credit card companies look for more ways to make money, in tight times, I’m sure that they’ll get more and more aggressive with their fees and charges.  If you must use them, be careful!

If this article inspired or informed, please Stumble It and pass the word.  Thank you.

I’ve written about this subject before, and you might be interested in some of those articles.

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How I Live Without Credit Cards

Life Without Credit Cards And The No Credit Needed Experiment

Edit:  I just reread this post, and I think I want to write a little more about combining the budget with short and long-term plans.  I’ll write about that in my next post.  If you haven’t done so, consider subscribing to No Credit Needed and you’ll receive all updates and new posts.

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How I Live Without Borrowing Money

Chances are, if you are reading this article, you are the money nerd in your family.  You spend hours thinking about how to fund your retirement.  You balance your checkbook – to the penny.  You create a detailed, down-to-the-last-dollar budget.  You work hard to save money and you are focused on the future.

In my family, I’m the money nerd.  My wife?  She’s the free spirit.  She works very hard at her job and she does a great job as a mommy.  But, she’s not all that interested in the day-to-day management of our finances.  She leaves most of the bill paying and investing to me.

So, how do we coexist and keep things running smoothly?

As the money nerd -

I (try) to remember that it’s our money and not my money.  This can be very hard for the money nerd, because the money nerd really likes to be in control.

I don’t make decisions.  We make decisions.  Sure, I like to run the numbers and create the spreadsheets, but I don’t pull the trigger on any major financial move until we are both comfortable with what we are going to do.

I am not the budget-master.  Here’s how we create our monthly budget.  I enter the data into my favorite budget software – You Need A Budget – and I print out a copy of our preliminary budget.  I hand the budget to my wife and I walk away.  She makes whatever changes she wants to make – and that is our budget.  (When we first started using a budget, it took some time to get on the same page, because we were both used to just spending money, without any guidelines.  But, over time, it gets easier and easier.  Now, we pretty much use the same budget, from month to month, with just a few minor changes.)  The only reason we don’t sit down together and do our budget is that my wife, quite frankly, just isn’t interested in watching me goof around with the numbers!

As the free spirit -

She realizes how much this means to me (and, ultimately, to us). My wife is the greatest.  She knows that I’m doing my best to ensure that we have an awesome future together.  So, she puts up with all of my nerdiness and my need for crossed t’s and dotted i’s.  Sure, she’s pretty much convinced that I’m insane, but she still puts up with me!

She actually participates in the process.  Instead of leaving all of the work – and all of the worry and headache – to me, she contributes to the planning process.

She sticks to the budget.  I’ve know many married couples where one spouse hides spending from another spouse.  By working, together, to create the budget, we avoid the money squabbles that ruin many marriages.  But, the budget doesn’t work unless you actually stick to it.

The money nerd in the family might be the husband or it might be the wife.  And, some families might have two money nerds.  Or, both husband and wife might be free spirits.  But, usually, there’s one money nerd and one free spirit.  If the nerd and the free spirit will work together, a family can make great progress.  The money nerd needs to learn to involve the free spirit in decision making – and the money nerd most avoid, at all cost, becoming the money-dictator.  And, the free spirit can help the money nerd loosen up a bit, and learn to enjoy the present (instead of always worrying about the future!).

Side note:  For the purpose of this article, I’m using the terms money nerd and free spirit in the most positive of lights.  I was trying to find terms that were easy-to-understand, which would also convey a little humor.  And, for those who might be tempted to think that money nerd = boss of the family, then you need to talk to my wife!  My wife is MORE than capable of managing our household finances, but, she knows that I enjoy working with this stuff.  So, she lets me.

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How Free Spirits And Money Nerds Can Help Each Other Out