3561: Can’t Stick to a Budget? Here’s the Solution by Jen Hayes on Money Habits

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[00:00:51] This is Optimal Finance Daily. Can't Stick to a Budget? Here's the Solution by Jen Hayes of JenHayes.me. Most of us have good intentions when it comes to budgeting. We create a spreadsheet, set a maximum spending amount for each category, and plan to stick to our budgets faithfully. Then we forget about it. We might have a general idea of how much we plan to spend in each category, but we swipe our debit cards all the time without even really thinking about it.

[00:01:22] Maybe we log into our bank accounts two weeks later and realize we're way over budget. Oops! Personal finance expert Dave Ramsey claims that Americans have lost our ability to feel money. Society has made it far too easy for us to spend money on autopilot. We can go on a shopping spree with just a few clicks on a computer, pay with a credit card, and forget about it until we get the bill a month later. Our tendency to swipe cards without tracking what we're doing makes it difficult to stick to a budget.

[00:01:51] Dave recommends the cash envelope system for budgeting. What's the cash envelope system? With this method, you'll have a separate cash envelope for each category of your budget. For example, you may have an envelope for eating out, another for clothes, one for groceries, and so on. You might put $100 in the eating out envelope, $50 in the clothes envelope, and $400 in the groceries envelope.

[00:02:17] Once you run out of cash in the envelope, you're no longer allowed to spend money in that category. Hit your $100 for eating out already? No more eating out for the rest of the month. Why it works. The purpose of using cash is to get you to feel money again. When we can physically see the money being taken away from us, we're more mindful about the purchases we make, in theory. We no longer shop on autopilot, and we become more intentional about our spending. It's also much easier to track this way.

[00:02:46] All you need to do is get out your envelope and quickly count how much cash is remaining for the relevant category. There's no need to update a spreadsheet every day or log into your bank account daily. In short, the cash envelope system forces you to not overspend. When the money runs out, you're done. Encourages you to spend less. Makes you more intentional with your money. Reminds you that you have a limited amount to spend. And gives you an easy visual of how much money you have.

[00:03:18] How do I start using the cash envelope system? Step 1. Create a budget. The first step is to create a monthly budget. Once you have an amount set for each category, you can select your envelopes. Step 2. Choose categories for envelopes. Your budget may contain 30 plus different categories, but you probably don't want to carry 30 envelopes with you everywhere you go. So that's okay. There's no need for that. Instead, select 5 to 10 categories that you'll use for your envelopes.

[00:03:48] The best ones to choose are variable expenses. You don't need an envelope for your mortgage payment or your cell phone bill if you pay the same amount every month and it's automatically withdrawn from your account. Here are some examples of categories you may want to include for your envelopes. Groceries. Eating out. Entertainment or date nights. Clothes. Haircuts, makeup or beauty. Discretionary spending. Hobbies like art supplies, scrapbooking, etc. Coffee.

[00:04:17] And miscellaneous. It's entirely up to you. Do whatever makes the most sense for you. Most categories include groceries, fast food, date nights, outings with friends, household items and drugstore items, and spending miscellaneous. And step 3. Choose your envelopes. If you don't want to spend money on new envelopes and you already have some old mailing envelopes lying around, those will work just fine.

[00:04:44] Simply write the name of the category on each envelope and you're good to go. Maybe you'd prefer envelopes that are more visually appealing. There are tons of options for cash envelopes out there, but you don't want to overspend on a system that's supposed to help you save money. Frequently asked questions about cash envelopes. Here's some of the most common issues that you may run into when you're using the cash envelope system. What if I have extra money at the end of the month? Congrats! You're doing a great job of not overspending.

[00:05:13] It's up to you to decide what you'd like to do with the extra money. You may want to set up some ground rules about extra money before you begin. Here are some ideas. Carry over the money into the next month. Put the money in savings or add it to retirement accounts. Add the money to your debt snowball if you're currently working on paying off debt. Buy yourself a present or do something fun with the money. Or give the money to charity. Can I move money from one envelope to another?

[00:05:42] Yes, you can do this. If it happens occasionally, I think that's fine. However, if you find yourself moving money around all the time, that's a sign of a problem. At that point, reevaluate your budget and make adjustments as needed. For example, let's say your budget includes $100 for fast food, but you always have extra money in this envelope that you end up moving to your clothes envelope. The solution to this is to decrease your budget amount for eating out and increase the amount allotted for clothes.

[00:06:10] There's nothing wrong with reevaluating your budget and making adjustments as needed. This does not mean that your budget failed or that you suck at budgeting. When you first start budgeting, you probably won't be sure exactly how much money is appropriate for each category. So there will be some trial and error. That's totally fine. From budgeting mess to cash envelope success. Ready to stick to a budget once and for all? Try the cash envelope system.

[00:06:37] This method will allow you to truly feel money again. You'll take your spending out of autopilot and put yourself back in the driver's seat. Remember this quote from Dave Ramsey. If you can't control your money, the lack of it will forever control you. End quote. Take control of your spending and live like no one else now so later you can live like no one else. You just listened to the post titled,

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[00:07:35] How doers get more done. Exclusions apply for licenses. See homedepot.com slash license numbers. And realize every outlet's taken. The times you're deep in your flow and the absolute last thing you need is an auto update throwing off your momentum.

[00:08:05] That's why Dell builds tech that adapts to the way you actually work. Built with long lasting batteries so you're not scrambling for the closest outlet. And built in intelligence that makes updates around your schedule, not in the middle of it. They don't build tech for tech's sake. They built it for you. Find technology built for the way you work at dell.com slash dellpcs. Built for you.

[00:08:34] Paying for everything in cash is a great tactic to rein in spending if you find yourself mindlessly swiping your credit card. When I was getting out of debt, I stopped using credit cards and paid for everything with my debit card, while also tracking every dollar I spent in an app on my phone. Regardless of how you go about it, I think both cash envelopes and tracking your spending get you to the same goal. They bring more awareness to where you're spending money.

[00:09:00] I suggest pairing a cash spending only strategy alongside a budget that you're consistently reviewing and tweaking. Awareness alone isn't enough to change your habits. You need to take those insights you gained from your increased awareness and use them to strategize around your budget. I think the goal here is to get yourself to a place where you're consistently living below your means. Once those healthy spending habits are in place, you'll need to think about this stuff a whole lot less,

[00:09:28] and then you can move beyond cash spending and optimize credit card usage for the reward benefits. I personally focus on credit card churning, where I open a card, spend just enough to earn the signing bonus, and then move on to the next card that has a good signing bonus at the time. So I'm only ever spending on one card at a time. It makes it so much easier to track my spending as well. Now keep in mind that I only started having fun with credit cards in this way after I got completely out of debt and overcame any temptation to overspend.

[00:09:58] This only works out favorably for me because I'm 100% committed to never carrying a credit card balance again. And that'll do it for another edition of Optimal Finance Daily. Finally, thanks so much for joining today and every day, and I'll be back again tomorrow. So I'll see you there, where your optimal life awaits.