Money Jar Budget Advice
Setting Up A Variable Spending Budget
money jar
Budgeting involves at least two areas: fixed budget and variable budget. It’s easy to see what your fixed expenses are but how do you know what the right amount of money is for your variable spending budget? First, you need to sit down and determine which of your expenses can fit into that budget.
What is a variable expense?
If the amount of money you spend on something varies from month to month, this is an amount of money that you have control over spending. Examples would be: food, clothing, entertainment, and gifts. Fixed expenses might be things like your car insurance, your rent or mortgage, your car payment.
A good way to analyse this spending is to look over the past six months of your bank statements and see what you’ve been spending. Creating a spreadsheet and looking at these numbers can be a sobering experience. This is going to be fairly easy if you spend a lot of your money with debit cards and credit cards. If you’re spending money with cash, you may need to track your spending over the next few months to help you analyse those figures.
By analyzing what you spend now and how that’s impacting your debt load, you can sit down and determine how to trim that budget.
Here are some variable budget trimming examples:
- Last month you spent $100 at Starbucks. That means you’re spending about $5 per weekday. Why not tweak the budget and only allow yourself $40 a month at Starbucks (or your favourite coffee shop). That’ll mean you only go twice a week. That $60 could top up a credit card payment and pay off that high interest credit card faster.
- Two months ago you spent over $200 on clothing. You need a clothing budget for each month but perhaps you can set that at $100 each month. In that case your weekly money jars or envelopes would have a $25 clothing fund. If you’ve been living in overdraft, that extra $100 could prevent that from happening.
- Your family ate out at restaurants 7 times last month and this totalled about $200.00. For this month, you’ll only eat out twice and allocate $70 (one $20 fast food meal and one $50 slightly nicer meal). What will you do with the extra $130?
Carefully looking at your spending is the best way to begin saving money and paying down your debts. You can still treat yourself to things you like and enjoy but by making decisions about the money you spend, you’ll have much more control over your finances and your financial future!
How to Organize Your Money Jar Budget
If you’re doing a money jar budget or an envelope budget, you might need some help determining what your budget should be for all the categories in both your fixed and variable expenses.
Here’s some help for deciding how much should go in each jar.
-Write down all your fixed expenses
-Write down all your variable expenses into a budget
Does the budget balance?
If there is money leftover, this is a good thing. If the numbers don’t jive, you need to do some crunching and some trimming to make this work. The goal is to have more than enough money to cover your bills and your variable expenses. If you’re allocating $200 a week to groceries, for example, but your numbers aren’t balancing then it’s time to trim that number.
Once you’ve made the numbers work, take your monthly earnings and divide it into 4. This is the amount of money you have per week to work with.
Divide the amount of the variable and fixed expenses into four and this is the amount of money you need per week to cover all your bills and have money to put into your envelopes or jars. Do you have money left over? If so, this amount can be divided between savings and debt repayment. The sooner you can pay down your debts, the more money you’ll have to put in savings and your jars.
Here’s an illustration:
Gail makes $3,000 per month.
Her fixed expenses come to $1,600.00 and her variable expenses come to $1,200.00.
She crunches her numbers and trims her variable budget to $1,000.00. With the $400 leftover, she pays $200 extra to her biggest debtor and the other $200 goes into savings.
Here’s a breakdown of her variable budget jars:
$125 weekly to food: $500 total
$50 transportation : $200 total
$25 clothing /gifts $100 total
$20 Entertainment : $80 total
$30 Emergencies: $120 total
If during the week any budget jar needs excess funds, Gail will need to borrow it from another jar. And, if any jars have money left over, you can then save it in your emergency jar or envelope for any unforseen expenses in a future week.
Budgeting is hard work but doing so is the best way to get yourself out of debt and save for the future. With a budget you can spend confidently, always knowing what you can and cannot afford. This equates to true financial freedom!
But I Can’t Give Up My Credit Cards, Can I?
People trying to get out of debt are nervous about getting rid of their credit cards. Some say they’ll need to keep one for emergencies or need it for buying things online. But if you continually rely on credit cards, it’s a sure sign that you’re spending money you can’t afford to spend. Pre-Paid credit cards could be a great solution for you.
Prepaid Credit./ Debit Cards
Pre-paid cards offer all the perks with none of the dangers that regular credit cards pose. You can have a pre-paid credit card or a pre-paid debit / ATM card. For a debit card, you have to pre-load them before using them so there’s no monthly bill and no interest charges! Simply load the card up with cash and use it the way you would normally use a credit card. There is a convenience fee associated with this so cash is definitely a better way to go but this type of solution could work great for going on holidays, putting yourself on a budget, and for putting your teenaged kids on a budget.
If you have a child who is a student living away from home, one of these loadable debit cards is a good way for you to send them funds in an emergency or as part of their living expense as well. They can most often access the funds within a few hours after you’ve loaded the card and you can often load it via the Internet or by dropping in to your local Western Union money transfer office.
If you sign up for a pre-paid credit card, it works very much like a regular credit card in that you pay interest and have a limit but the account has your funds in a savings account. The benefit of this type of plan is that it can help you rebuild your credit because if you make payments on time every month, it will start to report positive credit for you.
Living debt free is what you need if you want financial freedom. Living on a budget and cautionary spending are the first steps to getting there.
Where do you get pre-paid credit cards?
There are companies that offer pre-paid credit cards that allow you to pay a fee for a credit limit in return. Do shop around as the interest fees can be quite high.
In terms of pre-paid debit cards, there are at least a dozen options that you can find either online or at your local cheque cashing store such as Money Mart or Western Union.
Get rid of credit card debt as soon as possible! If you do buy a pre-paid credit card to rebuild your credit, use it very wisely and be careful you don’t fall into the old credit card trap that got you in debt in the first place.