By: Mevish Jaffer, Contributing Editor
The average American’s financial situation is not an easy one. With mortgage repayments, home insurance and rent; car payments, car insurance and gas; groceries; credit card debt; medical expenses; clothes; college loan repayments or other loan repayments; and perhaps even childcare; it is a wonder how we can make ends meet without receiving help or using payday loans.
Of course, there is an affluent minority that scarcely needs to give finances a moment’s thought. And, there are a few who, by some quirk of character, manage their money with the most precise responsibility and discipline, automatically, as if by second nature. For most of us though, managing our finances is both very challenging and very stressful.
Budgeting could be aptly described as the art of anticipation and discipline. By this I mean that it is a combination of anticipating all foreseeable future costs and disciplining oneself to maintain a balance that covers that sum, at all times. By dividing budgeting into these two components (anticipation and discipline), we see that it is a practice that requires both intellect and willpower. In this respect, budgeting is holistic art, and those who become successful at it have necessarily become well-rounded people.
The Common Financial Situation
- Mortgage repayments / Home-owner’s insurance / Rent
- Car payments / Car insurance / Car maintenance / Gas
- Credit card debt / Student loan repayments / Other loans
- Clothes / Groceries / Other household expenses
- Medical / Dental
- Childcare
Most failed attempts at budgeting are the result of confusing the intellectual process of anticipation with the willpower aspect of discipline. What I mean is that many responsible individuals have been unsuccessful at budgeting because their system of anticipation was poor. And, rather than addressing this, they concluded that they were just not disciplined enough to keep a budget.
In order to have a chance at budgeting success, one needs first to have an accurate and efficient means of anticipating future costs. I am going to suggest here one particularly accurate and efficient means, referred to alternatively as “envelope budgeting” and “virtual account budgeting.”
The term envelope budgeting comes from an old practice of storing one’s money in actual envelopes. Across the front of each envelope was a category, handwritten, like “Car” or “House”. There was an envelope for every spending occasion; and a dollar never left one’s balance without first coming from a designated envelope.
Of course, this method of allocation was risky. A fire or a robbery could bankrupt a person. So, it became common to substitute memos or virtual money for actual money, which stayed safely in the bank. Still, when an envelope was opened and the memo said $0.00, the purchase would have to wait. All of this pre-dates the present day virtual account.
A virtual account refers, specifically, to an electronic version of the envelope account, and is usually managed with spreadsheet software, like Excel. For example, in Excel, a worksheet could be assigned to each “account”, acting effectively like the old envelope. In addition to these worksheets, a balance worksheet can total up all of the virtual accounts and compare them against your bank account balance.
Envelope or virtual account budgeting is a method that takes the “out of sight, out of mind” principle and uses it to your advantage. Usually, this same principle works against you. For example, your wife suggests that the family go out to eat at Red Lobster or Olive Garden, your pick. So, you log on to your checking account and, as it is the beginning of the month, you see a comfortable balance of $2300.00. Thirty minutes later—“Wait, Jimmy’s got to use bathroom!”—thirty-five minutes later you are on your way to Red Lobster for lobster and steak.
In this case, what was “out of mind” were forgettable costs. Granted, when the guy in the example checked his account, he probably did a rough estimation of monthly costs in his head, and seeing that it was under the balance felt confident that they could afford to eat out. But this impromptu, hasty sort of estimation almost always leaves out several obligatory expenses. Though he meant well, our example subject fell prey to the situation of seeing all of his assets and only some of his expenses.
Envelope/virtual account budgeting reverses the situation. By dividing one’s balance into several smaller “accounts,” one for each expense you foresee, it becomes impossible to overlook any costs, while at the same time one’s total balance is indeed “out of sight.” In this way envelope budgeting takes a fundamental principle of human psychology and turns it upside down so that, by our very human nature, we are more likely to under spend than to under budget.
Note: when implementing the envelope/virtual account system, keep your categories general. Instead of three accounts—“car note,” “car insurance,” “gas,”—simply use “car”. Rather than “furniture,” “carpet,” “curtains,” group them all into “household furnishings”. Otherwise, you could literally be juggling hundreds of accounts, and it would probably not be long before you dropped the whole thing. By keeping it general, you keep it simple and manageable, and still every bit as effective.
Once you’ve decided on a strategy for anticipating future costs, whether it is the one suggested here or another, you will then be in a position to exercise discipline. Fortunately most find that with the proper strategy this isn’t really that difficult. Most of the problems we attribute to a lack of discipline are really the result of an overly complex, or imprecise method of budgeting.
All that being said, budgeting is an art; it takes time and practice. Don’t be discouraged if you forget to enter several purchases in your database. Just enter in an estimation and continue on. No one manages these things perfectly 100% of the time. And if you happen to under budget one month again, don’t be discouraged; this is exactly why you are budgeting in the first place. When you do come up short, you’ll know exactly how much more you need to put aside next month.
Finally, if for whatever reason you do find yourself short on finances, there are several reasonable fixes. Many creditors will negotiate a later date on payments; there are non-profit financial counselors who will even assist with those negotiations. Services such as cash till payday loan or guaranteed payday loans are a legitimate option to tie things over until your next paycheck.
A payday cash advance will offer you the opportunity to access money in times of financial hardship. Lenders offer guaranteed payday loans on a short-term basis and require borrowers to provide a post-dated check written out for the same amount as the loan given. Recently, lenders have been finding new and better ways to make the cash till payday loan application process easier and more convenient for borrowers. Borrowers can now access online payday loan companies and receive a guaranteed payday loan or cash till payday loan over the internet. Some lenders now offer no teletrack payday loans, meaning that the lender does not look up the borrower’s credit report, and therefore, will not turn down an applicant for a guaranteed payday loan or cash till payday loan due to bad credit history.
Lenders have also been offering a new type of cash till payday loan called the savings account payday loan. This is another method that lenders are using to make it easier for applicants to access guaranteed payday loans. Traditionally, a payday lender would only approve clients that had a checking account but lenders are now willing to deposit a savings account payday loan into the savings account of the borrower. The benefit of the savings account payday loan is time and convenience. The money is deposited straight into your savings account, there’s no check to be cashed and it’s all done over the internet.
When put into perspective, personal finances and budgeting is not nearly as difficult for the person who utilizes virtual account budgeting to keep their finances in order.
