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May 21, 2012


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I agree completely. No matter what I always make sure money each month is going into retirement, savings and other "me" accounts.

I also agree completely. During our working life we followed the article almost completely. Now we are in a position where we don't have to but many of the habits, once formed, become ingrained and are hard to change. We didn't have to read books to know how to manage our money, the knowledge came from necessity and from examples within our extended family when we were growing up.

Unfortunately when I look around at young adults today I see lots of spending in areas that were not part of our lifestyle. For example, we never ate out in restaurants when we were raising our family, we never had expensive family vacations, instead we rented cabins in and around national parks. We also never gave our children allowances, they each had multiple jobs. Our children learned from our example how to be thrifty and now at ages of 48, 50, and 52 they are each in excellent financial shape.

Maybe it's just me, but I view #5 and #6 as being at cross purposes.

If you use cash and only cash to buy food, when the cash is gone, you can't buy anymore and you are forced to use the bag of rice or can of beans in the back of the cupboard. You are forced to bring lunch from last night's left-overs. When you use plastic, you can make those $5 and $10 purchases that add up to an annual lunch tab in the thousands.

Everyone says they don't spend more even though they are using plastic instead of cash, but all the research suggests otherwise. Most of us spend more with plastic, and we spend enough to offset the cost to retailers for the privelige of paying with plastic.

An aside regarding safety: I no longer 'fill the tank' and rely on a gas pump's auto-shut off. At a full service station, the nozzle once popped out and sprayed fuel all over my car. The pump registerd some thirty gallons before the attendant could get it shut off. Considering I have only a 16 gallon tank, it was annoying to have such a large bill for wasted fuel on my credit card until it could get resolved. Now I buy in $20 increments. The pump is programmed to shut off. When we've used up our gasoline allotment for the month, we walk or take the bus.

It incredibly low tech, but the envelope method of budgeting for food, transportation & entertainment really does work.

This is actually a really good article. I was skeptical when it started out with "pay yourself first" because that phrase has been so overused and redefined that it is basically meaningless now. Having said that, the article is dead on and the proper meaning of paying yourself first - to prioritize above most needs and wants a certain savings rate - is clearly articulated. The advice about smoothing out expenses is excellent. In my opinion, you absolutely must have some mechansim for accruing expenses. Otherwise, people cherry pick one month of low cash outflows and conclude their financial situation is sound. Then the car breaks down or the roof leaks, invalidating that thesis.

I agree wholeheartedly with this article so much that I copied the link and sent it to my friends.

Catherine, thank you for the comment. As far as the "low tech" envelope method is concerned - it's brilliant! I use it in teaching young adults about budgeting all the time. It's based on the simple idea of deciding - in advance - how much you're going to spend in specific categories, and then stopping when/if you've spent that amount. And that one simple idea is at the heart of ANY effective budgeting process - no matter HOW high tech. Finally, if using real cash in some categories of your spending has been working well for you - by all means, carry on!

Sean, S.B., and Old Limey - thanks for the kind words. And Elizabeth - you are my hero!

Thank you so much for all of this helpful information. I've been trying to revamp my budgeting strategies and I think you've identified two of my biggest downfalls: making individual expense decisions and not planning for unexpected expenses. Now that I've identified these problems, I'm excited to plan better in the future. This post was extremely helpful; can you recommend any other articles for further budgeting/financial advice? Thanks for your input!

Ruth, thanks, and I'm thrilled that you found the article helpful! As FMF noted above, the article is an excerpt from my book "Securing Your Financial Future." There are two chapters specifically about budgeting, but the book comprehensively covers all the areas of personal finance. So if you want a recommendation for more on budgeting/financial advice - just click on my name!

Great information here. Pay yourself first and doing it automatically is probably one of the most important financial decisions one can make. I see your point with step 5 on not spending currency, but I've found that when people spend cash they tend to spend less. While I agree the spending trail may be harder to follow, it is certainly not impossible.

Thanks for sharing!!

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