I’m so excited to put my money saving plan into action this week. I’ve received really positive feedback about the endeavor (most enthusiastically from my parents; no surprise there). If you’re looking to try out the envelope system with me, this post will provide some tips for accomplishing the first 2 steps in the 6 part plan.
1. Define current spending habits
If you’re like me, then you know the magic (and the danger) of the debit card. Though a very convenient tool, it takes away the real impact of spending. There’s something heavier and more painful about handing over cash. In order to understand where all your money goes, I recommend analyzing your expenses from the past month or two. You can do this by looking over your bank statements or using a free budgeting tool like mint.com. Mint syncs with your bank account and pre-categorizes as many of your purchases as possible. You can manually organize the rest, and then it provides you with a handy-dandy breakdown of the situation in the “Trends” tab.
Here is the visualization of my spending for the month of September:
Now, this information would be more accurate if I averaged things out over several months, but I know this is pretty typical. The huge chunk in the “Home” category is rent and utilities, so it’s obviously not too flexible. The rest, I can do something about. Which leads me to…
2. Determine priorities and where cuts can be made
My eye immediately goes to the “Food & Dining” category where I made 21 purchases over the course of one month. Assuming I went to the grocery store 3 or 4 times, that’s a lot of going out to eat, and it’s clearly not necessary. By no means do I intend to quit eating what I like. (Are you kidding? See my previous post dedicated to cupcakes.) However, it’s important to plan ahead.
I have standing plans to meet a friend for dinner every Tuesday. Aside from that, I think I can limit the trips to just one other time each week. That still means eating at a restaurant 8 times a month, but it’s a whole lot better than 21!
When it comes time to budget in steps 4 & 5, I’ll definitely be focused on scaling back the “Shopping” category as well. Poor Target is going to take a hit.