The Practical Challenges of Making a Budget Work

I recently received a question about budgets that I’m guessing may be applicable to many other people.

Here’s the issue in the person’s own words:

Yes, we have put together a budget, but making it work for us is a different story. Do you have an easy-to-use system for spending money each month?

Our problem is this:

My wife and I collect receipts for all purchases we make.

It is really tough to log in the receipts every day in order to see how much is left in each category, so the receipts usually get logged every two weeks or so.

I want to make a purchase and I have to ask my wife how much we have in a particular category and her response is, “I can tell you once I turn on my computer and/or log in all receipts.”

Everything is on her computer and is not easily accessible, making the process too slow.

So, we have fallen into a rut where she is always saying to me, “Don’t spend this or that.” I respond by asking, “How much do we have?” which is answered by, “I have to log receipts so I can tell you.”

Bottom line: I spend with a cloud hanging over my head, not sure if we do or do not have the money.

Is there an easy-to-use process or tool for tracking expenses and spending money? Do you encourage an envelope system or what?

Here’s how I responded.

A Manual Solution

One way to solve these problems, as you mentioned, is to use the envelope system.

The first step in the use of any budget system is to figure out how much you can spend in each category.  It sounds like you may have done this already, but just to make sure, here’s how to do so.

Start with Gross income.  From there, I recommend deciding what percentage of that gross income you’re going to give to non-profits that you care about, such as your church, each month.  Next, figure out what percentage of your gross income you’re going to save or invest each month.  Then allocate what remains across the various spending categories.

I have posted my Recommended Spending Guidelines for various size households across various incomes.  They’re not cast in stone, but they may serve as a helpful guide.

Some spending categories will probably be handled electronically, like your mortgage, utilities, and other bills that you may pay online through your bank or credit union, like various insurance bills.

The envelope system is best for discretionary spending categories like clothing, groceries, entertainment, etc.  At the start of each month put the amount you plan to spend on groceries, for example, in an envelope marked “groceries.” When you go to the grocery store, bring that envelope with you and spend out of it, putting any change back in that envelope.  I also recommend that you keep a record of such expenses on the outside of the envelope.  Using this system helps you always know how much is left to spend in that category during the course of the month.

Some people think the envelope system is old fashioned, but it’s actually still one of the most effective systems for staying within your budget and also knowing at any point during the month how much you have left to spend.

An Electronic Solution

The second option is to use an online budget tool like  We used to use Quicken, but I kept bumping into the problem you mentioned about all of the information being on just one computer.  With, all of the info is online, so it’s accessible from any computer any time.

The scary part for some people is that you have to enter your passwords for your bank accounts and credit cards.  In exchange, the service automatically downloads all of your financial transactions except cash.  With cash transactions, you manually enter those.

The folks at Mint realize that security is people’s number one concern, so they go to the nth degree with security.  We use Mint and I trust its safety.  But not everyone is comfortable entering his or her passwords, which I understand.  So, it’s not for everyone.

There’s a little bit of a learning curve with, but we find it to be the most time-efficient way to manage our budget.

There are other electronic tools as well.  I’ve heard good things about moneyStrands (a free service like Mint), Mvelopes (a fee-based service that operates like an electronic envelope system), and others.

What other advice would you offer this person?


5 Responses to The Practical Challenges of Making a Budget Work

  1. Elaina December 4, 2010 at 8:01 AM #

    The first thing we do is give 10% from our gross income. Then we start with our net income and work from there, because all the taxes are taken out of the gross from our paycheck anyway. We have $1,000 in our money market for EMERGENCIES ONLY. If you have any debts–start with the smallest to largest. When the first is paid, put that amt. onto the next debt and so forth. Then work on 3-6 mos. emergency fund in a money market. That is used in the event of income stopping, illness, or large emergencies. Next is 15% in a 401k that matches and/or Roth IRA. Saving for college would be next. Then pay off mortgage and then give and save. For a car, I would put what you can in savings every month until you have enough to pay with cash. We never bought new, but a car that was at least 2 years or older. You both can decide on a plan with a purpose, and spend all your income on paper each month. That way you will know where it is all going. We are now debt free, and the only other suggestion I would have is to at least look at your finances together once a month. God bless you both to becoming debt free!

  2. Matt Bell December 1, 2010 at 10:13 AM #

    Chuck, that’s a great and really important point about each person having a monthly amount for discretionary spending. We each have separate budgeted amounts for clothing, which provides some freedom while also keeping our total monthly household budget in check.

  3. Chuck December 1, 2010 at 9:28 AM #

    While this couple has combined their finances, it may help for each to have a monthly amount for discretionary spending like clothing, technology, personal items. On the other hand, a waiting period of a week or so is helpful to avoid those deadly impulse purchases.

  4. Matt Bell November 30, 2010 at 5:07 PM #

    Martha, I can’t say there were hard and fast rules. It was a fairly subjective (and time consuming!) exercise. I started with generosity, then savings/investing, then capped housing at 25% of monthly gross income (decreasing this amount as incomes rose because you can still buy more house with a slightly lower percentage of a increasing salary), and went on down the line. These guidelines also reflect my overall philosophy of not significantly upping lifestyle expenses as income rises.

  5. Martha November 30, 2010 at 4:54 PM #

    I viewed the “Recommended Spending Guidelines”. What are the rules for the percentages for the different categories? I noted some rose and some declined based on the Annual and Monthly Gross Income amount.

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