Budgeting - Part 2 - Allocation of Funds

In the last post, I described using Budgeting Envelopes and how to divide your monthly cash among your CASH categories. 

Today I want to talk about allocating the money that stays in the bank, used for paying monthly bills, as well as savings accounts or special situations.


The first basic step is to determine WHEN you pay each bill.  

I use a simple calender (free from your local credit union) and as each bill comes in the mail, I write it on the calender on it's due date.    I also have each payday circled, so I can quickly see what paycheck each bill will be coming out of.  

You can go one step further than the calender and create a form with two columns (one for each pay day) and write down what needs to be paid, including food, gas, spending and savings, out of each check.    Keep a master list like this and you can check it off as you go, each month, making sure you never miss paying something (like when bills go missing). 

The next step I have taken is to create Individual Account sheets for several categories that my bills fall under.  These forms are used to divide the money in the bank, into the specific categories, with the specific monthly amounts assigned.    What this does, is takes the place of having 15 different checking accounts.   In other words - when you have money sitting in your checking account, but it actually needs to be divided into several areas, these forms allow you to do this division on paper.

Here's an example of the Individual Account sheets in my Finance Notebook:

Housing (this includes mortgage and utilities)
Phone (house and cell phones)
Education (college expenses and Collin's music lessons)
Auto (car notes and insurance)
Debt
Savings (includes Emergency Fund, Christmas, and regular savings)

I pay each of these categories electronically or in person with check, therefore, I need to keep up with how much of the money in my checking account is allocated for each of these items.   Also, some of the categories might carry over into the next month and if I don't earmark it for a specific category, it might get used or mistaken as "free" money.   This is very typically what happens and causes you to have "too much month at the end of the money" as they say!

The Individual Account forms are very simple and look like a giant check register.  

At the top of each form there is a space for the name of the category and two spaces for "Allocations 1 & 2".     The Allocation space is where you write the amount of money you will deposit into this specific category, with each paycheck.  

In other words -  For the Auto category, you might allocate $300.00 the first pay check and $300.00 the 2nd pay check, depending on how your note falls, as well as insurance.    If your budget allows for maintenance and tags, etc., include these amounts in your deposit.  These will carry over from month to month, not being used until needed.  (This is a perfect example of why we need to assign this money to a specific place.  Otherwise it will not be available when needed!)

Another bonus in keeping money separated is that the extra will come in handy - for instance if your electric bill is only $100.00 but you budgeted $150.00, means you have extra in that category for that one month when your bill shoots up unexpectedly!   Allocating money to each category means the surprise expenses will not hurt quite as much.

With each allocation, you write the amount on the form, just like a deposit in your check book. 

The columns across the top of the form will look like this:

Date    Transaction    Deposit     Withdraw    Balance


When you have allocated all the funds after a paycheck, the account balances on the forms should equal the total amount of money in your checking account.  

Yes, using these forms means you will have a few more checks and balances to keep up with, but for the sake of making sure your money is distributed properly and you're not left short at the end of the month - it's totally worth the effort!

To sum up the last two posts - For each paycheck you receive - you will do several things:
1. Decide what stays in the bank and what turns into CASH.
2. Divide what stays - into specific categories on paper.
3. Withdraw cash and divide into envelopes for spending.
4. Decide where left-over money will go (paying off debt or savings would be wise!)
5. Tweak amounts and categories as needed.

I hope these basic steps will help someone who is struggling in the finance area.   Sometimes just hearing it said in a different way, can spark something in our minds that we just couldn't "get" before.

The important thing is that we not give up.  God does not want us to be in bondage to the lender, therefore, we need to be diligent in doing our best with what He gives us!

"The rich rule over the poor, and the borrower is servant to the lender."  Proverbs 22:7

Happy Budgeting!