I submitted to a few carnivals this last week so want to share some of the highlights of each.  This is the 2nd week in a row that I had an editor’s pick on the Carnival of Personal Finance!  I’m really glad that I’m able to provide stuff people like to see.  I’m hoping there’s more in my head where those came from.  I’ve simply loved the sense of community around some of these carnivals.  Here’s the list for the fouth week of March:

Carnival of Personal Finance #145 - hosted by Million Dollar Journey

My Post:	How to Create an Envelope Budget System - I’ve been doing pretty well with envelope budgeting, so I thought I’d share how we did it.  This is my 2nd editor’s pick in a row too!
Others I liked:	Free Money Finance: How to Keep Your Child’s Identity Safe - I have 6 children.  I love articles like this that people with children need to read and apply.
	Squawkfox: Just say "NO" to crap! - I loved this post.  I’ve been telling my wife for years that we buy too much crap.  I’m printing this one and hanging it on my fridge or something.  Also, I love the blog.  Lots of potential there.
	The Honest Dollar: 11 Ways to Trigger an IRS Audit - Good stuff to know here, even though I’ve already done my taxes and all.  Never hurts to tuck this stuff away for next time.

Carnival of Debt Reduction #132 - hosted by Debt Reduction Formula

Carnival of Financial Planning - hosted by The Skilled Investor

Well, that’s it for this week, we’ll see you all next time!

Photo by scubaham

I’ve been doing a lot of thinking lately about changing my habits.  This year has been a pretty good one for me in general with changes to my habits regarding health and finance.  Another area where I’m going to be focusing this year is going to be on habits related to time management.

As I was thinking about my time management skills, I noticed a theme arise from my pool of thoughts around procrastination.  I’m actually a very experienced procrastinator.  I’d almost say I’m pretty good at getting things done when I really need to.  The problem is that I just can’t seem to complete everything plan for…just what’s on the first half of my to-do list.

Realizing I Was Borrowing Time From Myself

It hit me…like a Nerf bat to the head a half-dozen times in a cartoon-like fashion.  The source of my procrastination could be coming from my habit of borrowing from something I don’t have yet.  In this case, it’s time.  For example, when I’m cleaning out the garage I sometimes pick a corner to pile up things that I’ll go through later.  I get 75% of the garage cleaned, but then I’ve got this awful mess of stuff in a corner that’ll take me longer than that first 75%.  It’s very easy to walk away thinking I cleaned "most" of the garage, only to have to take twice as long next time just sorting through the mess to clean it correctly.

What happened here is that the first time I was cleaning, I really had the time to do it all correctly…but I ended up putting some of it off to do later, even though I wasn’t sure how much time I’d have in the upcoming weekends.  As it turned out, I was pretty busy the last 4-5 weekends and the mess is still there.  What I did was borrow future time in my mind that I ended up not having later because it was already allocated to something else.  So I wasted the time I had to go watch TV or something useless (I really don’t remember) essentially borrowing time in my mind from future weekends to finish the job I could have done now.

The Debt on Time

That borrowing of time from the future is the same mentality that got me into a financial mess with tons of debt!  Do you see the correlation?  I’ve borrowed a bunch of money to pay for things now based on some future income I’ll be getting.  With the garage, I borrowed time to complete the task later based on some future weekends in the schedule.

Photo by marina~

Now, since many of my weekends are filling up with other obligations, I’ll have to work twice as hard to manage enough time to eventually clean it all up.  I’ll probably have to do a little at a time over the course of a few weeks to finish it instead of being able to do it all at once.

This is the same predicament I’ve got for my finances!  It’s obvious that a behavior change is needed across the board here.  The debt mentality doesn’t stop at just finance.  You really need to break the debt habit with more than money, it can be applied to time the same way.  I’m not just talking about for chores either.  It can show up in lots of places:

1. Quality time with your family.
2. Finishing up a project for work.
3. Writing blog articles.
4. Paying bills.
5. Household chores.

I think your time management will improve if you think about your procrastination habits with the same despising hatred you have with debt.  I certainly have noticed a change in my attitude this weekend.  I had some family here for the holiday, and all the time I thought I’d have to do random tasks was completely eliminated by a change in plans.  Not that I regret spending time with family, but I’d have not put off so many things for the weekend instead of just doing them during my first opportunity!  I wouldn’t have procrastinated!  I wouldn’t have created my own debt on time.

How many of you seem to never have enough time for anything, but know your top 3 American Idol picks or can tell you all about the latest Lost romance?  Maybe it’s time for a re-examination of your time debt.  Got any other examples of things you’ve borrowed time for and still haven’t done?  Share your time debts with us, I’d like to hear if any of you are having some of the same issues.

Earlier this week I showed you step by step how to create an envelope budget system.  One of the keys to a successful systems is being able to modify it knowing that it’s not going to be perfect on day one.  Today I’m going to walk you through a few things that you can do to make sure your envelope budget system continues to work for you through an ever-changing environment.

Keep Track of Unplanned Spending

Photo by cote

The first rule you must follow in order to manage your envelope budget system effectively is to make sure you gather the necessary data while you’re using it.  One very important piece of information is how much you actually spend.  I like to keep a spending log of all expenses that are unaccounted for in my budget.  This can be applied to the envelope budget system as well, since in order to make it work better for you next time, you should account for what you spent this time.

As you’re keeping track of these expenses, you should note whether or not it’s a one-time expense that you didn’t plan for, or if it’s something that you overlooked in your recurring budget.  If it’s something predictable that you can plan for in the future, let’s make sure we make a note of that for the next pay-period.

I try to keep track of my unplanned spending by filling up a list for a month or so…then clearing out the list after I’ve adapted my system to account for the expenses next time.

Adjust The Amounts

Ok, there’s two important things to look for in each category when you get to your next money-stuffing cycle.  (I do mine every 2 weeks, some people do their every month.) 

1. How much MORE you spend than what you had (if you had to),  or
2. How much you have left.

Now, adjusting the amounts of your envelopes is really a function of modifying your budget.  So, first and foremost you must make sure that you’re balancing your budget as well as part of this process.  You only have so much income, and it’s got to cover all of your expenses.  What we’re talking about doing here is just adjusting the amounts between the envelopes that you ACTUALLY have room for in your budget.

The idea here is to simply go down the spending log that you created for this entire budget cycle and change the amounts accordingly.  There’s some rules to follow here:

Photo by drocksays

1. If you went over and have to raise the amount on a category/envelope, then you have to take that money out of something else.  That something else can be another envelope that you reduce the amount on going forward, or it can be an adjustment in your overall budget to use more for the envelope system.
2. If you have money left over, stop and think about the expenses in that category.  Were they accounting for expenses that aren’t regular and require you to build up a balance within the envelope?  Must you save up enough to pay for one big bill at the end of the year with the money in that envelope?  If so leave it alone.  Otherwise, you can consider lowering the amount and using that money somewhere else.
3. Don’t stress about getting the PERFECT amount this time just as it didn’t have to be perfect the first time!  This is a cycle.  We’re going to continue to change it over time, not all at once…right now.

Follow these rules and you should manage to end up with a pretty ideal set of amounts after a few cycles.  We’ve actually been able to find places where we realized we could cut back pretty easily after watching the amounts and thinking through them more carefully from month to month.

How To Overcome Miscalculations During a Pay-period

Photo by amypalko

Analyzing everything in retrospect is easy enough, but what about those times where you’re just out of money in a category before it’s time to put more money in it?  Well, I’ve got a couple of suggestions for how to do this that we’ve tried.  I think they both work pretty well, but after trying both we liked one better than the other.

The first method that we tried initially is to create a short-term ‘Miscellaneous’ category.  We tried putting lower, barely-get-by amounts in each category, then putting some money in the misc category that could be utilized as the overflow in case we went over in any other category.  This was helpful at first because we weren’t sure how much money we were going to use in some of them.  It got so small after a couple iterations that we just wanted to get rid of it.

Another method that we’ve now been using that we like so far is to just start each category with slightly higher amounts than we think we’ll use.  If we end up going over in any category, we’ll either use some of the unused portions of other categories, or dive into the emergency fund to make up the difference until we can replace it the next pay-period.  It really depends on the reason for going over budget and how much it’ll cost.

Either of these methods is fine, but the biggest catch-all method is to use the emergency fund for any oversights every time and replenish it at the next payday.  However, we’re trying to avoid that at all costs and still manage to run an envelope budget system as close to our budget as possible.

The key with this system, as with your overall budget, is to stay flexible.  It is possible to be super-strict with your habits and learning to only spend within your budget using a defined envelope system, but learn to keep the flexibility in the system…not in the spending behavior.

I’ve armed you with enough material to get your own envelope budgeting system started, and enough to help you keep it going through the changes in your budget over time.  As always, I welcome any tips or suggestions any of you have that could be applied to evolving your envelope budgeting system.  Share them with the rest of us in the comments!

I took a look at my ING Direct Orange saving account again today and I got some good news and bad news.  (Granted, it was all expected.)  First, I got my original $250 back in just 16 days after opening the account and depositing it.  Secondly, the interest rate was changed to 2.960% (3.00% APY) the same day.

Opening the Account

As for the $250, well, that’s the final step in the process of opening the account, depositing my $250 to get the bonus, and then transferring it back as soon as possible to leave only the bonus money actually deposited in the account.  (I also documented my experience opening the account in my post a couple weeks ago: Finally Opened an ING Account.)  As you can see, I only went without the money for 16 days, which really isn’t that bad at all.  From beginning to end of the process I was done in about 2 1/2 weeks total, and in the mean time I earned $0.34 in interest.

All in all, opening the ING account was painless and I look forward to using the account.

Interest Increase

You can see in the image that the interest rates were increased yesterday from 3.057% to 2.960% for a change in APY from 3.1% to 3.0%…a difference of 0.1%.  This isn’t anything to complain about considering the substantial rate cuts yesterday from the Fed.  I wouldn’t be surprised if there were more cuts soon even if they’re just small ones.

Now, I’m not entirely interested in the interest rate at this point because I don’t have a whole lot of money in the account.  There were two main purposes for this account:

1. To get the $25 bonus & $10 bonuses from anyone else wanting to open one using me as a referral.
2. To have a central location to deposit and organize money (using the sub-accounts) when saving for different items.

The second purpose is really something we’ll start doing once we have our debts down a little further, because until then we’re concentrating more on debt reduction than on savings.  But this account will be great when we get around to it.

So overall I’m happy with the ING account experience.  They lived up to their part of the bargain and I’ve got my bonus money.  If you don’t already have accounts there’s a list of referrals in my ING Account Referrals resource page listed on the sidebar.  Feel free to use one.

What’s everyone else’s experience with ING been like?  Anyone have issues with getting their bonuses or pulling their initial deposit back out after a couple of weeks?

I submitted to a couple of carnivals this last week so want to share some of the highlights of each.  I’m noticing that it’s taking me longer to dig through them and it’s harder to narrow down to just a couple to link to, so there’s 3 this week for both.  Oh well, it’s all worth sharing, so here’s the list for the third week of March:

Carnival of Debt Reduction - hosted by Ask Mr. Credit Card

My Post:	Cut Up My Credit Cards - Not only did I surprise the kids with some shredder action, but I won a contest as well while doing it!
Others I liked:	Savvy Frugality: How to Know if You’re in Deep Financial Trouble - This list hit home for me because I’ve lived just about all of them at one point or another.
	Debt Reduction Formula: Why People Stay in Debt - To get out of debt, you certainly can’t have any of these issues lingering around.
	Paid Twice: Don’t Set Yourself Up To Crash And Burn - Wiggle - I liked this one because it describes a scenario like the one we hit every time we want to splurge outside the budget.  I think working in some wiggle room into your budget is a good idea so you decide what to splurge on with planned money instead of unplanned money.

Carnival of Personal Finance #144 - hosted by Being Frugal

My Post:	13 Disadvantages of Living Paycheck to Paycheck - The first of my paycheck-paycheck "theme of the week" posts.  It also got selected as an editors pick!
Others I liked:	Monevator: Who’s Your Star Wars Money Hero - Huge star wars fan.  Loved the character analysis done here.
	My Dollar Plan: Five Fundamentals of Financial Success - I caught this one over the weekend and stumbled it.  Excellent list.
	No Debt Plan: The Concept That Changed Our Financial Life - This post outlines how applying a budget buffer helped change things for good.  I can relate so much to this post, and proof of that is in the fact that I ended up posting a scary-similar post the same week as part of my paycheck-paycheck theme.  We use a buffer now too and it helps immensely.

Well, that’s it for this week, we’ll see you all next time!

Earlier this week I talked about how we have been successfully using an envelope budgeting system for over a month now.  We identified some things that we spent outside the budget, but for the most part we did pretty well staying on track.  Well, I believe so much in this approach to help people get on track with a budget that I’m now going to share exactly how we came up with our system so you can make one too!

Photo by DarkYES

Be Flexible

One thing to keep in mind when creating any budget is to know that it will not be perfect on the first draft.  In fact, it probably won’t be perfect on the second or third either.  It takes time and many iterations to get to the point where your budget actually meets your planned expenses simply because things change too much.  If we all lived in a perfectly predictable world, budgeting wouldn’t even be necessary for anyone.

Choosing Categories

When we first started with our budget, we realized just how many categories there could possibly be.  Our first list consisted of just 5 categories, and then our second list had over 40 categories.  This was all before we’d even STARTED using them!  Believe it or not, I don’t really think it matters if you want to use a general set of envelopes or a really detailed set.  What really matters is how much time and effort you want to spend keeping track of each and every one.

Photo by drhunter

One key here is to only include categories for things that you can’t pay online or through an invoice or bill.  Things like mortgage, car payments, utilities, credit card bills, etc. aren’t good candidates for cash envelopes.  You should be paying these bills online or by writing checks for the bills as they come in.  The envelopes are for expenses that actually MAKE SENSE to use cash for.  Anything that doesn’t come as a bill in the mail is probably a good candidate for cash.  Again, it’s all about how much time and effort you want to put into it.

How did we decide to do it?  Well, after looking at that big list of 40 envelopes to make, we realized that a lot of them were related.  In fact, MOST of them were going to be purchased at the same store in one trip.  Can you imagine being at a checkout counter and having to gather up 10 envelopes worth of money and only take the right amount from each one while making people wait in line?  Well my wife sure as hell couldn’t either.  LOL!  This system has to be convenient folks, or you’re going to end up not using it at all.

We took our big list of categories and started combining them not only based on how they related by items, but also based on where we normally purchased them.  For example, we have one single envelope for ‘Groceries’.  This envelope used to be SEVEN envelopes including food, pet foot, baby supplies, toiletries, cleaning supplies, gardening, and medicine (over the counter).  Well, we get all that stuff at the SAME PLACE.  Even if we shopped at 3 stores for all of that stuff, it’s very easy to get any combination of those categories at any one store.  It just makes sense for us to have one budget for an all-encompassing ‘Groceries’ category than to mess with balancing all those other groups.

In the end, we took all of our categories and combined them into the following list (needs in bold) and labeled envelopes for each category:

Calculate Amounts

This is probably the most difficult part of the entire project.  People try to get the most perfect number when doing this.  If you’re sharing your budget with someone else, then it gets REALLY hard.  This is where you find out what’s important to who, and where you’re willing to give up one thing for another.  I’m not going to go into the details of how to pick your numbers here, because "how to calculate budget amounts" is probably a whole book…not a paragraph in an envelope budgeting article.

We started with our current budget.  We’ve been iterating over this budget for a number of months now, and it’s getting closer to what we actually spend each time we look at it.  We simply combined some of the categories on the budget to match our new envelope system and added up the numbers for each new category.  Once there, we knew how much to put in each one.

Now I’m not one to advertise to the world how much money I put in each category, so I didn’t want to put my amounts on the envelope with the label.  I look at the spreadsheets often enough to know what the amounts are and use that to keep track of everything.  However, a nice little tip for those of you that like to forget how much you get each month in your envelopes could consider writing down the number inside the envelope so you can remember when you’re out and about.

Keep Track of Envelope "Deposits"

After using the envelopes a little while, I realized that there was really no way for me to know for sure exactly which ones I’d already filled and when.  There’s a number of different ways to keep track of this, and I actually do a couple of things.

One way, is to keep track in your budget spreadsheet.  I turn all text in my budget spreadsheet blue once I’ve paid that amount to whatever bill, expense, or envelope "deposit" that requires my money.  Since my budget has a column for every single pay-period (I don’t budget from month to month, I base everything off of our 2-week pay-periods) I can keep track of when I paid each expense on its own pay-period.  So when I take the money to put it in the envelopes, I change the text in the spreadsheet to be blue for each category.

Another way to keep track of when I put money in the envelopes is to keep a list of the dates that I’ve already made a "deposit" on the envelope itself.  I just made a few months worth of paydays along the bottom, and we cross them out when we put money in.  This way, when I’m in the store thinking "oh man, I’m not going to have enough for everything I wanted" I can look at the date and see how close I am to the next "deposit" and plan around it.  I’ve found this very helpful for my wife to keep track of how much we have to spend and more importantly, when we have it to spend.  She doesn’t like looking at spreadsheets all that much, but having the amounts IN the envelope and the dates ON the envelope, she can get an idea of what to plan around as well without actually going down to the computer.

Fill The Envelopes With Cash

Now for the fun part! :D  Whether you do your budget monthly or bi-weekly, the most exciting time around here for us is actually putting money in the envelopes.  Each pay-period, we stop by the bank and withdraw all the money needed to fill all the envelopes.  Having that cash in hand is such a strange feeling after having just used plastic for everything all the time.  It’s actually a lot of fun knowing that we’re going to only spend what we just took out, like a big oversized monopoly game or something.

That evening we sit down and fill the envelopes, check everything against the spreadsheet to make sure we have everything in order.  Update our blue text and cross out our dates…then we’re on our way until the next payday!

I hope those of you interested in making a budget system are able to do something very similar to get started.  Most of the hesitation in creating a system like this came from the fact that we thought we had to have everything perfect right away.  That is NOT THE CASE!!!  It won’t be perfect the first time.  You have to modify it over time to fit your actual needs!

So with this week’s theme that started with OUR successful envelope budgeting, I’ll continue to HELP YOU with envelope budgeting by showing you exactly how to modify your system over time in an upcoming post.

As always, I welcome any tips that any of you would like to add.  I also love hearing your stories and opinions, so jump in and let us know how you’re doing with your envelope budget system!