Now, with that said, I'll try to guide you through the process that led me to my "jars" and where I am today. It is a ton of information, I know. I'm going to do my best to keep it as basic as I can, and give examples where ever possible. I'd like to say it isn't confusing, and I really don't think it is. But if you are coming from a different system, or no system at all, this may seem somewhat overwhelming. Stay with me, and I think I'll eventually explain it all by the time you get to the bottom of the post. Also, all numbers in this explanation are hypothetical. They are NOT my actual budget.
$3200.00 (round down to have a nice round number to start with and a small buffer of $33.56 savings)
- $320.00 (10% savings)
- $320.00 (10% debt)
$2560.00 (this is the amount I actually have to work with)
- $1800.00 (mortgage)
- $500.00 (this is taken out in cash for my Jars)
$260.00 (leave in the bank)
Now we move on to the Jars. It is like the "envelope" system that many people use. However, I decided that envelopes were too easy to put into my purse and keep there. I knew I would need some sort of system that made me make a conscious decision to get money out of a jar for this or that, and not just grab a stack of envelopes and dash off to the store. It meant I had to plan ahead. It also meant that my husband had equal access to the money as well. And they aren't really jars at all - rather they are plastic food containers I picked up from the Dollar Store. I have the following "jars": groceries, gas, clothing, entertainment, gifts, health & hygiene, J's lunches, haircut, school, cleaning/laundry/paper products, miscellaneous, and nails(manicures.) I also have an annual bill savings file for AAA membership, vehicle registrations, and Sam's club membership. On payday, I go to the bank and take out my $500.00 in ones, fives, tens and twenties. I then go home and divide the money up into the jars. I have already determined how much each jar will receive, and it will be the same amount every paycheck. This makes life simple. So I break it down like this:
- Groceries $150 (ONLY edible food)
- Gas $100 (for all vehicles)
- Clothing $30 (for the whole family)
- Entertainment $20 (go to the movies, popcorn at the movies, movie rental, etc)
- Gifts $15 (for birthdays, baby showers, get well cards, weddings, etc.)
- J's lunches $5 (he can pick 2 days that he would like to buy hot lunch at school)
- Haircut $10 (I'm the only one that pays for haircuts)
- Health & Hygiene $20 (cough drops, razors, toothpaste, shower gel, ibuprofen, etc.)
- School $5 (this ensures that there is money for field trips or other school related expenses)
- Cleaning/Laundry/Paper products $20 (409, laundry soap, toilet paper, etc.)
- Nails/manicure $20 (I get my nails done each month)
- Slush funds $20 ($10 each to both myself and David - it means that we can get a coffee or whatever and this money does not have to remain accounted for.)
- Miscellaneous $50 (covers for any overages or needed extra money in any area. This is also where J's "paycheck" comes from - another post entirely)
- Annual bills envelope $35 (AAA, vehicle registrations, Sam's membership)
In some jars, I'm saving for something like a haircut. In other jars, it is what I have to spend. If I don't spend it all, it remains in the jar. I don't have to buy clothes each month, so that money continues to accrue. Then when clothes are needed, there is money available specifically for that need. But when the money is gone, it's gone.
Back to the bank account. As you can see, there is money left over. This allows for unforeseen emergencies. However, if by the day before the next paycheck, there is still all this money in the account, it gets transferred out to savings so that the next paycheck comes into an empty account. Using the above example, I would transfer $293.56 to savings. This includes the $33.56 saved off the very top plus the $260 left after everything was paid. Get it?? So, for this check alone, I have saved $613.56 with my 10% included in this number. I'm also $320 closer to paying off credit cards.
Now lets move on to the next paycheck on the 15th:
- $3233.52 deposited
- $3200.00 (saving $33.52)
- - $160 (5% saving)
- - $480 (15% debt)
- $2560 (my available money)
- - $1920 (bills, and this number should remain the same)
- -$500 (jars)
- $140 (leave in the bank)
OK, now lets discuss "debt." My credit card payments are not included in the bills. They are being addressed twice a month out of the "debt" money being taken off the top of the paycheck, and I'm using the snowball method for paying them off. This means that all credit cards will have slightly more than the minimum payment made, and the rest of the money will be applied to the highest APR card until that card is paid off. Once it is paid off, all money gets focused onto the next card with the next highest APR until it gets paid off, etc. This cycle continues until all the credit cards are paid off. Also, if you noticed, out of this paycheck, I have only 5% going to savings and 15% going towards debt. I'm still working within the same 20%, but I'm trying to get my debt paid down as quickly as possible. I am aware that I could apply less to savings, and more towards debt to pay it off even faster, but I chose to make sure that we have money set aside for emergencies.
Now, on to the bills. This amount should remain the same every month. I'm saving whatever is leftover after paying each bill. It will balance out in the end. Here is what I mean. For example, I have a budget of $200 for the electric bill. However, this month my bill was $129.37. I pay the bill, and transfer $70.63 (the difference between my actual bill and my budgeted amount) into a savings account set up specifically for the purpose of holding the monthly bill savings. Now lets hypothetically say that my bill next month is $212.44. I won't have to readjust my budget for the month because I have $70.63 in savings specifically saved for the electricity. So I transfer back to checking $12.44 to cover the balance of the bill, and I still have $58.19 in savings. Are you still with me?! Now, like the last pay period, whatever is left in the account the day before payday gets transferred over to savings. This time my total would be $173.52 ($33.52 at the very beginning, and $140 that was left in the bank.) This means that for this whole month, I have saved a total of $947.08. And I've paid off $800 in credit card debt.
OK, now I'm sure you are asking how I'm keeping this all straight as the months move along, right? I use Microsoft Money. Using the above example for the electric bill, when I transfer money into the savings account, I assign that it is as an overage (category) for the electric (subcategory.) Later, I can choose to look at a category/subcategory to see how much is available.
I understand that my system is more detailed than most would use, and that is fine. If you decide to use any of my ideas as jumping off points, please feel free. Make the adjustments you feel necessary. Add a jar here, tweak a jar's purpose there. Like I said at the beginning, I'm still settling in to this particular system, and there is room for adjustments. But, after a lot of long evenings scribbling away on my notebook, this is what I have come up with that works for me. If you have any questions, please leave me a comment and I will try to answer it the best I can.
For all sorts of other tips and tricks, check out Rocks In My Dryer. There is something for everyone over there!