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Part 3: Living Within Your Means

Give every dollar a job. Many financial advisers say so, and I can wholeheartedly echo the sentiment. Don’t just leave those lazy bucks loafing. The best way to put your dollars to work? Budget!

You may have tried budgeting in the past. The trick to successfully budgeting is finding a method that works for you and putting in place systems that support your efforts. Here are three tactics that can help your budgeting efforts:

  • Automate whatever can be automated.
  • Use cash, not credit.
  • Divvy up your money in envelopes.

Let me explain further:

  • Automate – If you automate nothing else, do it for your savings account. Pay yourself before you buy even a stick of gum. Then, set up an account for bills and automate your bill paying. 
  • Use cash, not credit – Credit is too easy. And psychologically, it doesn’t feel the same as doling out hard cash. Researchers tell us that we spend less when we pay by cash. So, leave your credit cards at home.  
  • Divvy up your money in envelopes – The envelope method is a low tech way to take control of your finances. You simply use cash in each of your budget envelopes. Carrying cash, however, may not be feasible. In that case, use digital technology that lets you put your money in spending categories. 

Which Digital Technology is Best?

For the envelope method, I recommend Goodbudget because it’s crazy simple to use. Plus, this free cell phone app is available for both iOS and Android. Rather than actual stationery, Goodbudget uses digital envelopes with customized spending categories. Regular envelopes are for recurring daily and month expenditures. Annual envelopes are for the things you pay periodically. 

When you enter a transaction, it gets deducted from the appropriate category. A green status bar on your Goodbudget dashboard means you have money left. Red is your signal to stop spending. You get more bells and whistles with the paid version. But for now, try it free. It works fine for a start and you may decide that the free version is all you really need.

Strategies to Stay on Track

Even with the envelope method, it’s great to have additional strategies to help you stick to your budget. Before you read these strategies, I suggest you revisit Worksheet 1A. 

  • Get in the habit of spending less than you make. 
    • If you regularly overspend your budget by 10%, reduce all of your line items by 10%. For example, if you currently spend $10 each day for lunch, figure out how to spend only $9.
  • Save for large purchases rather than buying on credit. 
    • This delay has two potential benefits: (1) You may decide you don’t actually need to buy the thing, or (2) you may prevent yourself from spending future earnings.
  • Know how much money you owe. 
    • Don’t bury those statements in a drawer. Review them every month.
  • Be realistic about what you can afford. 
    • Notoriously frugal billionaire, Warren Buffett, reported breakfasts at McDonalds daily, carefully spending no more than $3.17.
  • Don’t spend every penny. 
    • Give every dollar a job. It’s easy to fritter away money, so make each dollar you get, count.  Add it to Savings or toward any debt.  
  • Pay yourself first. 
    • If you have money leftover in your budget, save that, as well.
  • Include your periodic expenses in your budget. 
    • You’ll avoid having to scramble to make a forgotten payment.
  • Build an emergency fund.
    • Even if you have too much debt to think seriously about saving, you need an emergency fund. It will help you avoid racking up further debt when the unexpected happens. 

These are budgetary principles that you can take to the bank. As you start to incorporate them into the way you live your life, you’ll see more and more opportunities to cut your expenses. 

Make sure you do the action item for today. We’re getting into budgeting. 

In Part 4, we’ll tackle debt. Can’t wait to see you then!


1 action item, 2 worksheets

Action Item 3: Track Your Expenses

There are many budget apps out there. If you have one you prefer, by all means use it. I recommend Goodbudget to start because it is straightforward and free. It does NOT sync to your bank accounts, provide you with budget guidelines, or remind you to call your mom on her birthday. But it does offer a clean, easy-to-use interface and is perfect for our purposes. Did I mention that it’s free?

Regular Envelopes

Download your favorite budget app and familiarize yourself with its features. Goodbudget supports the envelope method with up to 10 categories. Use the expense categories recommended below, or come up with categories of your own:

  1. Transportation
  2. Housing
  3. Groceries
  4. Coffee/snacks
  5. Gas
  6. Entertainment
  7. Sports/Kids
  8. Barber/Salon
  9. Clothing
  10. Debt payments

Other Envelopes

  1. Savings
  2. Gifts
  3. Insurance
  4. Subscriptions
  5. Taxes

Worksheet 3A: Expense Tracker (optional)

If you don’t want to use an app or just prefer to do things with paper and pencil, print the spending log worksheet.

Worksheet 3B: How the Small Things Add Up

These illustrations are not meant to imply that you must give up all of your habits and customs in order to follow a budget. They are simply intended to show how easily the seemingly small things add up. Imagine what you could do with an extra $1,000 a year!

Tim Horton’s

Sausage biscuit breakfast combo each workday

$6 X 20 days X 3 months = $360

That’s $1,440 a year.

Favorite Craft Beer

Happy hour consumption at the brew bar once a week

$8 X 10 X 3 months = $240

That’s $960 a year.

Smoking Cigarettes

du Marier habit of 5 a day, 18 packs in 3 months

$15 X 18 = $270

That’s $1,080 a year.

Movie Night

Twice a month, one couple, with two pops and a bucket of popcorn

$30 X 2 times monthly X 3 months = $180

That’s $950 a year.

A good strategy would be to cut your spending in small ways across a number of categories. You don’t have to live a life void of the little pleasures. (Although, if you do smoke, now would be a good time to quit!)

What can you let go of?

Habit: ______________________

Frequency: __________________

Cost: _______________________

Duration: X 3 months

Total: _______________________