In my column last week I wrote about the jar system of budgeting--it's really as old as time. You divide up your money that you have to spend each month into different categories, keep them in jars, and then only spend what's in the jar. Presto!

I received an email back from a reader of my column asking me to explain the jar system in more detail, because they're in debt and she wants to get out of it. So my Works for Me Wednesday post is all about getting out of debt, and budgeting properly!

Here's what you do. Figure out your income. Calculate your take home income on everything you make, and try to maximize that as much as possible. Can you baby-sit some kids a few times a week? Can you help your husband work overtime if possible?

Now figure out your expenses, in this order. First comes tithing. 10% off the top. It's always fun to have a family meeting each month and figure out how to dispense that money, if it's not already being given automatically. It's fun to give stuff away! And if you think you don't have the money for it, you're wrong.

A friend of mine told me that she and her husband have only begun to truly tithe in the last few years. But since they have, the money has never run out. Last week they found out that the husband, who has been taking seminary courses in a city three hours from us, is going to have to stay over an extra night a week to finish up this year. That's an extra hotel, and extra meals. About $150 a week.

They were quite scared, because money is tight. But the very next day they received a phone call from his work saying that they had made a mistake on his pay to the tune of $600 a month. Problem solved.

That doesn't always happen, but I've found that it frequently does. So tithe first.

Now you want to save, right off the bat. I recommend at least 10% in that, too. Your savings may be going towards debt repayment, but try to take out a good chunk every month to bring that debt down as quickly as possible. And take the money out at the beginning, not the end.

Now you have your remaining money. Figure out what is necessary to spend: rent, car payments, insurance payments, utilities, etc. Put this amount on a piece of paper in one jar marked "necessities".

The rest of your money is your disposable income. Take it out of the bank so you actually have it in cash. Don't spend using a debit card if you're heavily in debt, because it's easy to lose track of stuff. Cash you can't lose track of. Let's say you have $700 left. So how are you going to spend it? Figure out what your categories are going to be. I'd recommend food, entertainment & outings, health & beauty, clothes, transportation, kids' stuff, gifts, and whatever else you may think you need. Allocate reasonably.

Some of those jars are going to have hardly anything in them. It's going to be depressing. But do it. The clothing jar may only have $15 in it, but every month you can add to it until you can afford to buy some stuff. Similarly, the gift jar is one that's going to have to be added to every month so that when birthdays and Christmas roll around you have some money on hand to buy stuff. But you don't want to blow that all in one month, because you're going to need it on an ongoing basis. And the transportation jar is important, too, because it reminds you that taking the car everywhere may not be such a great thing to do. Can you walk a bit? If it's within 25 minutes you probably can, and that gives you exercise as well!

Last week when I was speaking about ten women who stopped by my book table paid in the same unique way. They pulled an envelope out of their purses and took the money out of their. I could tell that they were using the jar system. When they leave the house, they take the money from the jars and put it into separate envelopes in their purses, and that's what they get to spend. So everything is already budgeted.

The good thing about the jar system is that you know you won't overspend. You have to make those dollars stretch, and it reminds you how much you have. It teaches us to be really careful.

But it also takes away the guilt. You don't have to feel guilty for every Starbucks coffee you spend, if you've been careful this month and it's left over in the jar. It means that you do have money for that coffee. And you know you do! You're not just mindlessly handing over your debit card and hoping for the best.

When we started the jar system with groceries I couldn't believe how much I spend without thinking. When we had to budget, my shopping habits changed considerably. And for the better.

Budgeting really only works, though, if you take those big things off at the start. Give the money away and pay down your debt first. Don't wait to see what's left over at the end of the month. Make those things your priorities, and you will feel richer, because you are acting more wisely and more responsibly.

I hope that helps! And if you don't want to go all out with the jar system, why not at least try it for groceries? That's often our biggest expense when it comes to our disposable income, and if you get that under control, you'll feel better already!

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Labels: debt, saving, spending, Works for Me Wednesdays