One of the best ways to bring a budget under control and live within your means is to use the envelope system.  The envelope system of financial expenditures is one of the simplest and most effective systems that a person experiencing financial distress can adopt. It works like this.

 
At the beginning of each month, or as you receive your paycheck, you sit down and allocate on paper where every dime of your money will go for the month.

Once you have determined expenditures by category, you will make a very strict allocation of cash money into specific envelopes labeled for each unique purpose. For example, set aside money for food in one envelope, entertainment in another, fuel in another. You get the idea.

Of course, the money will need to be put in a safe place. Another option is to put all of the money in the bank, cut up your debit and credit cards and withdraw money on a weekly basis and put it into the envelopes. This way, you only have a week’s worth of cash at any one time.

For each category of financial expenditure, once the money in the envelope is gone you can no longer spend on that category for the month (or the week as the case may be). This system of financial management will literally force you to live within your financial budget. It will compel you to be penny wise and cost conscious.  You will find new and interesting ways to make your money go farther – you will clip coupons, eat leftovers, drive less, and generally spend less. In short, it will force you to live within your means!  You will amaze yourself, your spouse, and your friends!

Living within your means is so incredibly empowering! You will sleep better and feel a huge burden lifted from your mind. The biggest contributor to people overspending is to have unfettered access to debit and credit cards with not thought to how much they are spending in a specific category of expenditure. If you are running low on gas you just go fill your tank. If you want specific food items you just go buy them – with no thought to whether you can afford it. If you want to go out to eat at a restaurant you just go. These are the habits of the very wealthy or the very undisciplined.

Make the Hard Financial Decisions Using Financial Objectivity

Take a hard and objective look at each aspect of your expenses. If you look with any objectivity at all you will see plainly that MOST of your financial expenditures are not necessities at all. They are extravagances. Once you come to this realization, the financial decisions get easier.

In order to get ahead financially, you will have to start making some choices regarding what is critical and what is discretionary.  The reality: very few things are a matter of life and death. Most of what we spend is discretionary.  However, it may be the case that our past decisions have encumbered our future. In other words, some things, while discretionary, have become permanent because we have made decisions to sign up for debt and sign away our future…  This is a time to be discerning regarding outlays. Extravagant expenditures, no matter how seemingly useful are not appropriate. 

Ask yourself the following questions:

1. Can we do without it?
2. Is it a matter of life or death, shelter or no shelter; eating or not eating?
3. What will happen if we don’t spend money on this today?
4. Can this particular purchase be postponed?
5. Can I afford it?  This is the wrong question. It is irrelevant. You can always justify any expenditure. See question #2 please.