Your Budget Solution? The Envelope Please . . .

What do you want to be when you grow up? A common response is, “I don’t want to grow up.” Well, Tinkerbell, it’s time to wake up. Peter Pan only lives in Disney movies and in the imagination of small children.

It’s time to grow up, whether you want to or not. You’re an adult. You now belong to the YOYO world – You’re On Your Own. Your mommy isn’t going to take care of you forever. The democrats aren’t going to take care of you – even though they’ll try because they think we’re all helpless idiots.

Here’s another question: What do you want to be when you grow old? If you don’t take care of your money, and plan for the future, your retirement years will be filled with countless hours on your feet saying, “Welcome to Walmart” about 1,000 times a day.

The first step to fiscal responsibility (there’s that “R” word again) is to make the most of the money you make. You likely have a pile of bills that need to be paid. It’s also likely that, from month to month, you’re not sure if there is enough to pay all those bills.

Prioritize Your Bills
The idea is to prioritize how you spend the money you have coming in. You’ll need to sit down with your better half and create a budget. What is most important? -- shelter, utilities, groceries and health. If there’s anything left after you’ve paid these bills, then perhaps you can take care of some other obligations.

A very effective method of creating, and sticking to, a budget is the “envelope” method. Take a handful of #10 business size envelopes and label each envelope for each priority. As the money comes in, put the exact amount of money going toward the mortgage in the envelope labeled “mortgage.” Do the same for utilities, groceries, transportation, etc. This isn’t rocket science.

What It Takes
With limited funds coming into the household, you have to cut back on spending to make ends meet. Sacrifices have to be made. It may be painful, but you don’t really have a choice. It will take commitment; a sense of awareness and a large dose of self-discipline. It will come from deep inside. You’re not going to develop these qualities from watching a few hours of Dr. Phil.

No cheating! There’s no stealing money from the “groceries” envelope to take the family to the Beavis and Butthead Theme Park. No stealing money from the “mortgage” envelope to buy that win ticket on Woe Is Me in the fourth race at Belmont.

You’ll need to say “NO” to eating out, “NO” to vacations, “NO” to watching QVC at 3 a.m., “NO” to those lap dances, and “NO” to everything else that doesn’t address your priorities.

If you have anything left, after taking care of the survival essentials, you’re doing pretty well. You can begin to deal with other financial clouds that may be hovering over your life. Your first objective should be to pay down the balance on your highest interest credit card. That’s costing you a fortune in interest every month. Hopefully, you’ve already explored the possibility of moving your credit card debt to one of those Zero or low-interest cards. I’ve seen people juggle their debt for a year or more by moving it around from company to company. Be careful, though. Always read the fine print on those offers. Also, be very wary of those hustling debt consolidation.

The “envelope” method is simple and straightforward. If you do have money left over, sock it away. You should be building up an emergency fund of three to six months of living expenses. In life, mierde happens. Count on it. And it will happen at the least convenient time. You have to be prepared to clean it up and paper towels won’t help. To use a football analogy, you can’t play offense without the ball. Until then, you need to play solid defense.

Obama just gave a speech acknowledging how we, as a country, have to cut back on Federal spending. He just projected a budget for 2010 of $3.55 trillion. That’s more zeroes than I can comprehend. He’s going to need more than envelopes to make this work. He’ll need a genie and all three wishes.

Obama went on to outline in how he plans to cut spending by a whopping $17 billion. Tons of cuts will have to be made. Sounds like a lot, right? It sure did to me. Then I got out my calculator. The $17 billion amounts to less than one half of one percent of the $3.55 trillion budget. It’s like a fly on an elephant’s butt. Who is he kidding?

About 100 days into his presidential term, Obama desperately wants to be a hero. He promised change. Keep in mind that this is the same guy who didn’t blink an eye at spending a reported $170 million for his inauguration. It seems like that might have been a good place to start, if he was serious.

Some hero. It’s pretty clear that our kids and our kid’s kids will be paying taxes to cover his spending programs for generations to come. I hope I’m wrong. Folks, it might be a very long four years.

However, you can be a hero in your own household. The changes don’t have to be as dramatic. Take a deep breath, buy a box of envelopes and give it a shot. You can do it.

(Mike Parnos has been writing about personal finance and teaching stocks and option trading for 15 years. Mike is the author of "Option Profits: The Naked Truth." Mke also writes a highly successful options newsletter at www.Mike-Parnos.com.)