Episode: 297 - The Budgeting Playbook: Strategies for Consistency and Success
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Creating a budget is a great first step towards better financial health, but let’s be honest—having a budget is just the beginning. Staying on track can feel daunting without the right support. What if you could go beyond simply planning your finances and start mastering them? In this post, we’ll explore two game-changing tools—sinking funds and the envelope system—that can help turn your budget into a proactive financial strategy.
Understanding the Budget: Your Financial Roadmap
A budget serves as a guide for your money, mapping out where it should go. This involves outlining your income, tracking expenses, and categorizing costs into fixed expenses, variable spending, and savings goals. While creating a budget is essential, the real challenge is sticking to it. If you’ve ever excitedly created a budget only to set it aside and forget about it, you’re not alone. That’s where the right tools come in.
Sinking Funds: Planning for Irregular Expenses
Sinking funds are small savings accounts dedicated to expenses that don’t occur monthly, like annual insurance premiums or holiday gifts. By planning ahead, you can avoid unexpected financial stress. For instance, if you know Christmas costs $1,200, saving $100 monthly ensures you’ll have the money ready by December. Automating these savings can help you stay consistent and keep your emergency fund intact. Sinking funds are a simple yet powerful way to handle non-monthly expenses without derailing your financial plan.
The Envelope System: Controlling Day-to-Day Spending
The envelope system is a proven cash-based strategy for managing variable costs like groceries or entertainment. You allocate a specific amount for each category, withdraw the cash, and place it in labeled envelopes. This physical limitation helps curb impulse spending and ensures you stay within your budget. Research even shows that paying with cash can reduce overall spending compared to using credit cards, making this method both practical and effective.
Start Small and Build Consistency
The key to success is starting with manageable steps. Try using the envelope system for just one or two categories, such as groceries or dining out, to get comfortable with the process. Combine this with sinking funds to cover irregular expenses, and you’ll create a balanced approach that strengthens your budgeting habits over time.
Budgeting isn’t about restriction; it’s about empowering yourself with tools to achieve your financial goals, whether that’s buying a home or taking a dream vacation. Begin with small adjustments, such as setting up a single sinking fund or using cash for one spending category. Gradually, you can expand these practices to enhance your financial discipline.
Ready to break free from financial stress and start living without the burden of debt? Join our free "Life Without Payments" masterclass, where we’ll guide you through effective strategies to manage your finances and stick to your budget. Click the link in the show notes to register and take the first step toward lasting financial freedom.
Resources Mentioned
The Totally Awesome Debt Freedom Planner https://www.debtfreedad.com/planner
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Transcript:
Amber Taylor:
Creating a budget is one thing, but actually sticking to it that's a whole other story. Without the right tools, sticking to a budget can feel incredibly overwhelming. So today we're jumping in to some tools like sinking funds and the envelope system to help really get you focused on actually sticking to that budget instead of just writing it out and throwing it in a drawer. Hi, I'm Amber. My husband and I saved and paid off $54,000 in just 20 months, and we've been living debt-free outside of our mortgage since May of 2018. Today I'm going to be your host for the Debt-Free Deb Podcast, where we help everyday people take control of their finances so they can live a happier, less stressful life. Now, after you listen to this episode, if you're ready to take things to the next level, if you're ready to break free from living paycheck to paycheck and reduce financial stress, but you're not sure where to start, we've created an incredible free resource to help you get there, and I'll be sharing that at the end of today's episode. A budget or a cash flow plan whatever you want to call it is something telling your money where to go. Whatever makes you feel good about what you're calling it. So a budget is a roadmap, right. It's telling your money where to go. What directions are you taking your money? Where is it going? Now, the important part before you create a budget is knowing your income, tracking your expenses, identifying those fixed costs, the variable costs and any saving goals that you may have. So creating the budget really allows you to get a picture of the roadmap for your money and where it's going. How many of you have written out your budget, created a spreadsheet? We're super excited where this is going to happen. We're going to do this. I got this. We're super excited where this is going to happen. We're going to do this, I got this. And then you close the spreadsheet, you put the budget in a drawer and you never went back to it, and then you go oh, that didn't work.
Amber Taylor:
Now, a great tool to really help you follow and stick to your budget is using sinking funds. What is a sinking fund, though? Sinking funds is just a savings bucket or a savings account, somewhere you're going to continually put a little bit of money or dripping money into it, and these sinking funds are for things like the holidays, birthdays. Maybe it's for car insurance that comes up once a year because you pay it annually or biannually. Maybe it's for a camping seasonal site that you only pay once a year. These are the things that you want to create sinking funds for, so they don't sneak up on you and derail your budget.
Amber Taylor:
So you want to set this up initially at the beginning of the year or whenever you're starting to plan your budget. Look ahead a year from today and look ahead and say or look back what have I paid? That's irregular. You want to make a plan, create a list for your entire year. What comes up in January, what comes up in February, march, april, may? What are the things that come up each year but don't happen on a monthly basis?
Amber Taylor:
Once you have that list, you can then determine how much you need to save each and every single month for that particular thing. Let's say you're starting in January and you're looking ahead to Christmas in December. If you normally spend about $1,200 for Christmas, you're going to then divide that by the 12 months and you're going to put $100 into that sinking fund. You can put this in a separate savings account. You can put this in an envelope wherever you want to store this sinking fund, and what you're going to do every single month is put that in there. So when you get to December, you have the money to spend for the holiday season. So same goes for, like insurance. If you pay insurance every six months and it's January and you know it's due in June, you're going to put $100 every single month away for the insurance so that you have $600 when it comes to June to pay the insurance. Sinking funds will save you so much from derailing your budget because oh my gosh, I forgot this. Or it will save you from depleting your emergency fund because you forgot about something that was coming off irregularly that doesn't often come up Now.
Amber Taylor:
A pro tip is to automate that savings. It's really easy. When the money drops into your bank account, life is happening and you're like, oh my gosh, okay, I'll do double next month because XYZ came up this month and I have to use this money. If you automate this so that $100 comes out before it even hits your bank account and goes into that separate account, oh my gosh, this is going to save you so much headache. You will start to not even realize it's not there until you're going to need it. You're going to be like, oh, thank goodness I set this up Now.
Amber Taylor:
This next tool is incredibly important for your day-to-day spending. This is going to help you stay even more on track when it comes to your budget every single month. It is called the envelope system. Many of you have probably heard us talk about it or, if you're new to the podcast, you're like I've heard this, you know, on TikTok, whichever. So the envelope system is basically a cash-based method of managing variable expenses. Think about, like groceries, entertainment, fun money, maybe pet supplies, like wherever that you're kind of variably spending every single month gas for your car. That's going to go in the envelope.
Amber Taylor:
So if you're watching on YouTube, I have envelopes in my hand and these are from our debt-free dad planner when you get the all in bundle. So these here you're going to every single month you're going to put down how much money you're putting in there, what the category is for. So if it's groceries and you could do this by pay or by month, and then what you're going to do is you're going to withdraw the budgeted cash for each category. So if you spend, let's say, $300 a week on groceries, you're taking $300 out. Or if you get paid biweekly, $600 out every two weeks, you're putting it in that envelope and that is what the envelope is for. So start looking. How much do I regularly spend on groceries? Can I cut it back a little bit? And how much am I pulling out each month for this grocery envelope? And I will not spend any more after I've spent out of this grocery envelope.
Amber Taylor:
And you'll notice, sometimes you'll have a little bit extra at the end of the month, where you were like, oh, I didn't spend as much. Yay, good for me. Right, keep it in there for next month, add it to a debt, wherever you want to put that. All right. Now you're going to do the same for fuel for your car. You're going to do the same for entertainment, whatever variable things you have going on, and then you're going to use the envelope and you're going to label these with your categories and then you're only going to spend what's in the envelope.
Amber Taylor:
So you're going to the grocery store now with cash. Once the cash is gone, the spending stops. There's no going into overdraft, there's no going into extra, there's no using the credit card. You're using cash and the benefit of this is having that visual of where your money is going. It's been proven it hurts more to pass over cash than it does to swipe or tap a card. It really helps you stick to your limits that you set so that you avoid impulse spending.
Amber Taylor:
When you go to the grocery store with X amount of dollars and the grocery store is set up to make you buy more because they're strategically placed things at checkout or different areas that make you spend more you're going to have this cash and know okay, this is my list, this is what I got to stick to. If I don't, I'm going to be at the cash going, uh, you need to take that off. Uh, you need to take that off. Right, I have been there. I have been there where I've had to have them take stuff off because I put too much on. Now there was also a study about this, about cash versus credit cards, and this study was by Dunn and Bradstreet and they found that people spend 12 to 18% more when using credit cards instead of cash. Similarly, research by Prelick and Simister revealed that participants were willing to pay up to 100% more for an item when they used a credit card versus cash.
Amber Taylor:
It's a psychological thing, so I know it's not as convenient, but having that cash and having it for each category is really going to help you stay focused and stay on track with your budget so that when you go back and you look at that budget and you re-evaluate that budget every single week, you're going to be able to give yourself a pat on the back because you stuck to your categories. The main thing is to pick something and stick to it, stay consistent with it. So my suggestion, if you're going to take anything from today's episode, is use the envelope system and, whether it's just for one or two categories, to start, my suggestion would be groceries, entertainment those would be the two I would definitely start with. So using sinking funds for future expenses and envelopes for everyday spending. Together, these will cover most of the aspects of your budget. The sinking funds prepare you for what's ahead and the envelope system keeps the day-to-day spending in check.
Amber Taylor:
Many of you may think following a budget is super restricting, but following a budget isn't about restrictions. It's about using the tools to stay on track to reach your goals. If you have a goal down the road to go on a dream vacation, or you have a goal down the road, like we did, to purchase our first home, having those tools in place really helped us get to our goal. So just try two small little changes. Whether it's an envelope, whether it's maybe starting a thinking fund, whatever that looks like. Start small and then gradually add on different things to help you stick to your budget.
Amber Taylor:
You're not going to regret it Now if you're ready to break free from living paycheck to paycheck, reduce financial stress, build savings and finally pay off debt for good. But you're just unsure of where to start. Click the link in the show notes to join our free Life Without Payments Masterclass, where we'll guide you step-by-step to take control of your finances and get started on your journey. Plus, we're hooking you up with some incredible free tools that you can start using immediately to jumpstart your progress. So don't wait Click the link in the show notes and join the free Life Without Payments Masterclass today.
