A couple months ago, my budget was set up on a bi-monthly schedule, which was aligned with my paychecks. It was easy to budget each bi-month and I could allocate leftover money easily. However, I never had much leftover money. Actually, most bi-months, I was negative. To understand how I was negative, you first need to know my wife and I use the envelope budgeting method. For those of you who already know what the envelope budgeting method is, skip the next paragraph. Otherwise, read on!
The envelope budget system derives from the way grandma used to do her budget. She would get $100 every bi-month. Then, allocate $20 for groceries, $40 for bills, $30 for savings, and $10 for tithing. Each dollar is physically placed in four different envelopes: groceries, bills, savings, and tithing. Then, when it came time to pay for something, she would take the envelope with her. For example, she would take the grocery envelope with her to the grocery store and leave the rest at home. That's essentially the envelope budgeting method. I follow the same method, but instead of physical cash, I do everything electronically.
With us being negative quite often in our envelopes, I had to find a solution, because it made things stressful. If we overspent even $5, then we felt defeated. It wasn't us being hard on ourselves, because we knew that $5 adds up quickly. I have hundreds of virtual envelopes. If I overspend $5 in even 20% my envelopes, then we're hurting financially that bi-month. It's hard to be perfect every month with our budget and I had to figure out a way that I could give my wife and I a little bit of a buffer.
When my wife got a new job, this was the opportunity I needed to implement my new idea to help us with overspending in envelopes. I called this the "disposable income" envelope and it has been the solution to our problems. Every budget cycle, I put $50 in this disposable income envelope. What this does for us, is give us a little bit of a buffer from cycle to cycle.
For example, this cycle we drove a little more than normal and had to fill up on gas twice. Typically, this would hurt us and we would have to pull money from our savings (thus, our savings never grew). But now, this doesn't hurt us. We use some our disposable income to set our gas envelope back to full during the next budget cycle.
Another advantage to having a disposable income envelope is that it gives a fresh start every cycle. Now, we're still strict with it. If we overspent in our spending envelopes, we don't use the disposable income for a fresh start. I have a soft rule that if I can get it refilled over the next couple cycles, then I won't use my disposable income for it. For example, if my gas envelope was negative, I probably won't be able to refill it over the next couple cycles, because we're constantly driving to and from work, needing gas. However, if my spending envelope was negative, I could go a couple cycles until it was refilled. Plus, I need to learn from overspending, so it would be good if I didn't spend for a little bit.
The amount of disposable income you need each cycle is dependent on your budget. If you implement a disposable income folder and find yourself constantly using all, if not more, of what you have, that indicates that something is wrong with your budget. You need to reevaluate your numbers and adjust where needed. I also think it takes a good bit of self discipline to not overspend, knowing that the disposable income is there to catch you. That will defeat the purpose of a disposable income.
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My name is Corey and I have a passion for budgets and personal financing. I can talk about it for days (weirdly enough). Hope you enjoy the blog!
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