Personal Finances and BUDGETING - Best Practices and Worst Practices

Just a bit of wisdom I've aquired from personal experience
with regard to budgeting and personal finances.


BEST PRACTICES:


Best Practice: DEOPARTE / NEEDS / WANTS

strucutre EVERYTHING to fit in these categories.


Best Practice: 10% DEOPARTE.

(every mnonth put aside ~10% of anything and everything you earn)
(this means instead of giving it to merchants and vendors and ohters, you are paying yourself!)


Best Practice: NEEDS <50%

things that must be paid, and are essential to sustain life.
includes - house rent, house upkeep (heat, water, etc), electric bill, minimum requrement of all bank loans payments,
and money for the food you NEED to just survive. also add in costs of food for other family members in case you are
responsible for others too.


Best Practice: WANTS.

use this category to put in ALL the REMAINING money.
this is the money you ACTUALLY have for your desires.
typical examples of stuff that goes here: new electronics doodads, travel and holidays, parties, snacks,
fast food, etc.
basically it includes most everything you WANT, but that is NOT ABSOLUTELY VITAL to your survival on the planet.


Best Practice: ENVELOPES.

this is huge

use envelopes for DEOPARTE. put them aside. this way you won't go into them.

envelope for needs.food, envelope for needs.upkeep, envelope for needs.bank-y, envelope for needs.phone, etc.
all needs in envelopes

use envelopes for specific big wants - ex: envelope named 'xyz trip, x money'

use envelopes for 'general expenses' wants


Best Practice: BUFFER BUDGET

this again was a break-through.

it seems that life is never perfect and neat, and you'll probably always be to some extent 'off-budget'
this is where the BUFFER ENVELOPES come in. they'll save your mental sanity.
instead of getting stressed out that the food costs 5% more than you expected and IT WOULD MESS UP ALL YOUR OTHER PERFECT BUDGETS,
you JUST USE THE BUFFER BUDGET to account for this and so the correction is easy, and especially - the correction like this
means YOU DON'T HAVE TO RE-THINK YOUR ENTIRE BUDGETS PLAN FOR THE MONTH IN THAT SPECIFIC MOMENT WHEN YOU'RE DEAD-TIRED, AT THE SHOP COUNTER.

Best Practice: many buffer budget envelopes

this is a very low-tech way to manage how much money you have left.
just make 4-12 envelopes per month, and put some cash in them.
mark them week1, week2, .. or week1.part1, week1.part2, week2.part1, etc the thing is to make them many and with small amounts each.
the small amounts will make you more aware of how much you actually CAN spend IN THAT PARTICULAR DAY, COMPARED TO THE ENTIRE MONTH.
(ex - if you spend 2 weeks worth of buffer budget in half a day - it signals you probably have some major personal financial issues...)

but with small amounts in each envelope you know - 'okay.. it's the middle of week 2, and I've already used up my buffer envelopes up until

the end of week 3. I'd better watch out till the rest of the month.
(I'm refering to 'the end of the month' as in 'until the next salary')


WORST PRACTICES:


Worst Practice: keeping all your money on your cards.

I don't know for sure why, but if all my money is on my cards I just feel like I have a ton of money that will never run out.
I guess it has something to do with not seeing the big picture, and not seeing all my needs, utilities, payments, and commitments all in front

of me to compare the priority objectively - then and there in my mind, on the spot .. when I feel like making a big purchase with the card.

and besides this, there's always that feeling of... 'oh, there's still enough left on the card'


Worst Practice: carying too much cash with you.

the impulsive part of me is damn strong, I'll tell you that, so if I have plenty of money in my wallet I may end up spending
a weeks worth of food money in just a day, on fast food, taxies, drinks at the bar, and other 'who-knows-what' doodads

so I found that carying only what you (the smart you) are allowing yourself (your impulsive self) to spend that day is
a good way to keep yourself (your impulsive self) in check.

but do remember to bring just a bit extra, so you don't get into trouble for not having enough money to buy a subway ticket :))

Usually I carry about 50% of what I think I'd spend in a week in my wallet.
+ the envelopes of stuff I need to pay - bank payments, blah blah.


Worst Practice: spending from your 'PUT ASIDE' envelope to buy doodads (wants)

guilty.
I'm still working on this one.
When I do get the answer here, I'll be sure to note it.



Cheers,
Lucian Luminosul