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Maybe grandma knows best after all...

This whole food budgeting process has actually permeated into other areas of our life...it's hard to put so much effort into stemming one cash-bleed, and not see other areas that need major repairs as well. It's like a bad trip to the mechanic - you bring your car in for a broken headlight and suddenly find out that you have a rotted-this and a leaking-that.

I have kept the purse strings pretty tight, but if you were to ask me exactly where all of our hard-earned dollars went each month, I'd be hard-pressed for a complete answer. I am neither a financial planner nor a certified accountant, I am a master juggler. Unfortunately, as Ringling Brothers-worthy as that monthly performance may be, it's not going to help me have a more complete picture of where our money is going and how we can do better. I know the bills do get paid each month - we still have a place to live, hot water, electricity, and working phones....but it would be nice to reach the last paycheck without having to play Peter against Paul, and with no regrets about how money was spent earlier in the month.

What I have noticed as I've researched frugal living online (mostly looking for cheap recipes), is that almost all of the websites recommend the Envelope system, or some version of it. The basic concept is probably very familiar to your elder relatives:

  • Figure out how much the monthly cost is for each of your necessary expenses (rent, utilities, food, insurance, etc.) and divide by the number of paychecks you get each month.
  • Each expense gets its own envelope, and each week you CASH your check and divvy up the money to each envelope.
  • When an expense comes up or bill comes due, you go to the corresponding envelope. If it's a fluctuating item like grocery, you can only spend what is in the envelope until the next paycheck.

My husband's grandmother swears by this system. But what to do in today's society, where we can carry plastic before we can legally drink, and marketing tells us that cash is a major inconvenience?

There are a few resources that have brought the envelope system to the digital age. For the uber-connected, I would recommend Mvelopes.com. They have combined expense management on the envelope system premise with on-line bill pay, automatic transaction retrieval (from bank and credit card info), and basic financial planning software. And the info is securely stored online, so you can access it anywhere without specially installed software. The cost is between $8 and $12 per month (depending on your service agreement) but if you're tracking spending and cash flow from several sources, it's worth the cost.

For those who prefer software without the expense of membership fees, I found MySpendingPlan.com. They also use the Envelope concept but in a self-contained budgeting tool. You will have to manually enter income and expenses, but the software will allow you to set up a virtual envelope system to manage where the money goes. It also has special tools for budget planning major one-time expenses (wedding, home remodel, vacation, etc), creating shopping lists, and lots of other extras to help organize your budget and work towards long term goals.

And finally, for those of us who just prefer the KISS principle but don't want to cash our checks each week, Excel is a tried and true tool. There are plenty of ready-made templates out there, like this template from MS Office. You can edit and customize these to suit your own budget, or use it as a guide to create your own from scratch.

Whatever system you choose, the real test is actually sticking to the limits you put on your finances. No matter how good any system is, the one thing none of them will do is prevent you from using money for things not on your budget, or overspending. But if you can commit to the budget you create, it won't be long before you can finally give Peter and Paul some much-needed rest...and maybe earn some peace of mind for yourself, too.

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