What is budget and how it works?

Not Sure How a Family Budget Works?

• I am new to budgeting. My husband and I are currently living paycheck to paycheck. I have been using the cash envelope system for groceries, gas, household items etc. It is my understanding that the day before the "next month"(I've set it up so every month begins on a payday), I should technically have $0 in my account, unless I have planned to have extra in my account. If I am looking at my account the day before the "next month" begins, is the money that I see in my account all extra? For example, if tomorrow is my "first day of the month" and I have $1,000 in my account today-- is this $1,000 extra? I think the goal in budgeting is to be one COMPLETE month ahead-- is that right? Or, what do you think is the minimum amount I should have sitting in my account, just so that I do not overdraw?

• Answer:

  You should have at least the amount to cover all standing orders for utilities for the month plus any bank fees that might be due (even if charged quarterly and not monthly) in your account at all times. I feel it is a bit tight if my balance comes down below 400, which allows a good margin just in case. If you technically have $0 in your envelope system at the end of the month, it means you are budgeting very tightly indeed, and you have no margin for error. If you have $1000 left over, this is a sum you could add to savings. Did you have an envelope for savings? You do need an emergency fund. The goal in budgeting is to have enough to meet your needs at all times. If you can be one complete month ahead, that gives you a little breathing space.