How to Budget
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Basics of the Bee!
(Budget that is!)
My budgeting system is basically the envelope system, but with due dates. And, we like to call them honeypots instead of envelopes. The idea of the envelope system is that when you get a paycheck, you take your money and divide it into envelopes, or honeypots rather, where you are going to need the funds. You will have a honeypot for your home payment, whether it is rent or mortgage. You will have a food honeypot, a gasoline honeypot, a honeypot for electricity, etc. All those things that you spend money on, you will have a honeypot for.
This budget will help you make sure the next honeypot that you will need to use will be funded first.
As you move along your budgeting journey, you will be in a phase working towards your next goal. These goals will be things like setting aside for your entire months of expenses, saving $1,000 in your emergency fund, and paying off debt.
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When you get your first paycheck, you will need to distribute it to various honeypots. The most important honeypots to cover first are the bills that are coming due NOW and are the ones that you must pay before your next paycheck arrives. We call these your NOW bills. These bills will come up first to be covered with your paycheck. Distribute your paycheck to these NOW bill honeypots and hopefully your paycheck covers all of them. If it doesn’t quite cover them, you may need to see about spending less in areas where you have more flexibility, like food, gasoline, entertainment, or by canceling some subscriptions that you can live without for a little while. Try adjusting your honeypots so that you can fully fund all of your NOW bills.
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The bills that are listed next are the ones that are going to be due AFTER your next paycheck is expected to arrive. We call those bills your NEXT bills. If you distribute your first paycheck and find that you have some left over, start to fund your NEXT bills. See how far into your NEXT bills you can cover. Then when you get your second paycheck, part of those bills will already be covered and your money should go even further and start to cover the bills you have recently paid so you are already prepared for those bills next month. Your first goal is to be able to cover all of your bills for the coming month. Every situation will be different because most of us have more bills due in one half of the month than the other or we may have more than one source of income or have a partner who also contributes to the income. That is all ok. Your goal is to fund all of your honeypots for the month, and specifically, the bills coming due first.
Throughout the month, you will need to log in and enter any expenses that have been paid because that will reduce the amount of money set aside in that honeypot. You will need to refill those honeypots with your next paycheck, after the NOW bills are funded first of course. Make it your goal to under spend in the honeypots where you can. That way, your next paycheck will go further and further to being able to fund your entire months worth of expenses.
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One magical day, you will receive a paycheck. You will distribute that paycheck to the all of your honeypots and you will realize that every honeypot is fully funded and you have a little left over. When that happens, we recommend that you put that extra amount towards savings and congrats! You have moved up to Phase 2! You are now ready to start setting aside money in savings to reach your goal of having $1,000 saved as an emergency fund.
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Once you have saved $1,000 in savings, this is where the fun begins! You’re moving on to Phase 3. With your next paycheck, you will make sure all of your honeypots for the month are full and ready to pay your bills, and you will make sure you still have $1,000 in savings, and now, any extra money from your paycheck will go towards your first debt! Go to your debt page and decide if you want to pay off your debt using the Snowball method or the Avalanche method. I will explain the Snowball and Avalanche methods in detail in the Setup and Tips page.
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Find the debt that you want to pay extra to first and add more to the honeypot for that debt. When the time comes to make that debt payment, go ahead and send the amount you have set aside in the honeypot and you are on your way to paying off your first debt!
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You may be in this phase for a long time. It’s ok! It’s a journey! You didn’t get into debt in one day (most likely!) and you can’t get out of debt in one day! My spouse and I were in this phase for three and a half years and when we finally paid everything off, it was SOOOO WORTH IT!!!
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Snowball Method
Smallest debts are paid first, giving you quicker rewards for paying off debt.
Avalanche Method
Highest interest rate is paid first, saving you the most in interest.
After you have paid off all of your debt, we suggest that you change your savings goal. Based on the bills left after the debt is paid you can choose if you want to save 3 months worth of expenses or 6 months worth of your expenses in your savings account. Make that amount your new savings goal.
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After you have achieved the 3 or 6 months worth of expenses saved in your savings, the sky's the limit! What do you want to save for next? You can choose to pay off your home next. (Some people choose to keep their mortgage for investment reasons, tax purposes or other reasons. Do your research and decide if you want to accelerate your house payoff or not.) You might choose to save for something special. A car you’ve always wanted. A family vacation to that dream spot. A business you’ve always wanted to start. The goal while you are in this phase is to save up for the things you want and not go back into debt for it. You should now know the value of your hard work and how great it is to get to this point. You should also see that it doesn’t take long to save up for the things you want, so hang on to that discipline that you’ve learned and save up to pay cash for that big ticket item.
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At this point a HUGE congratulations is in order because you made it to a debt free lifestyle! There are many things you can choose to do from here as far as investing goes. Again, do your research and decide what is best for you and your family.
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Go bee free!