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Budgeting can be very difficult. With one swipe of a credit card you can buy now and pay later for virtually anything. With this type of mindset it is hard to budget for expenses. The envelope method of budgeting makes keeping a budget a lot easier and will prevent you from spending beyond your means.

Start by figuring out how much you spend on each category of your budget. Food, utilities, clothing, luxuries etc. For each category you should then obtain an envelope and write the name of the category on the outside. At the beginning of each month, place the appropriate amount of CASH in the envelope.

You are to spend only the amount that you place in your envelope. This will help you visualize the amount of money you need through the month and how much you are actually spending. You will not realize how much the grocery costs you until you start paying with cash rather than a swipe of the card. Handing over a stack of $20 bills can be a bit demoralizing at first, but it is for the greater good.

The envelope system works because you only spend what you have. You cannot reach into the bottom of the envelope and find more money, nor can you borrow from other envelopes because chances are that they are running low as well. For people who cannot stick to their own written budget, it is a lot easier to follow through with the envelope budget. You will quickly forget about your savings accounts and how much you are actually saving by keeping money in itemized envelopes. When you have only $50 allocated to spend on eating dinner out, you will make it will make your decision, and quite possibly the overall enjoyment of that dinner, much more valuable to you. The key is to stick to the system and only use each envelope for its intended use.

You will find that the envelope system really helps you visualize your budget as dollar bills rather than payments that need to be made. Give it a try.

Frequent flier miles, cash back on gas and fast food purchases and a free 55 day loan? Many people associate the savings of cash back and miles as the only way to produce revenue from a credit card. In fact, a credit card is a great way to buy everything on an interest free 55 day loan while collecting the card’s rewards.

Credit cards and their billing cycles can be very difficult to understand. Generally speaking, a billing cycle is a 30 day period on which you can make charges followed by a 25 day grace period, or the amount of time before a credit card payment is due.

Take for example a large purchase such as a sofa. You want a great new $700 couch to put in your living room and of course want to pay as little as possible for it. If you were to charge the couch on the 5^th of the month, you would only be 5 days into your billing cycle, therefore you still have 50 days to pay it off; 25 more days in the billing cycle and 25 day grace period.

Instead of paying cash, you put the couch in a credit card for $700. You will not actually have to pay for the couch until the bill is due and you will profit from any rewards programs (such as 1% cash back) in the meantime. Just by using your credit card, you will get a nice $7 back in rewards, and receive an interest free loan for 55 days, or 50 days in this example.

Another benefit is that your cash can sit in your bank account until the payment is due. Considering a 3% yield on deposits, you will earn an additional $3 just by keeping the amount ($700) in your bank account. In total you are receiving a return of $10 for the $700 purchase that you were planning to make anyway. You can see over the course of a year how quickly your savings will add up. A credit card can be used to pay virtually everything, mortgage, utilities, gas, groceries all on a 55 day interest free loan.

If you were to use a credit card for your entire monthly budget of say $2500, you would get $25 in cash back rewards and save $11 in interest each and every billing cycle. A $36 savings just by paying with a different medium is nothing to balk at, that is like getting your cable for free.

Typically we would think of obtaining a loan from the friendly loan officer at the bank, rather than going to the general public for a loan. But new online lenders use eBay style bidding to allow people to get loans at rates they would have never previously received.

The old banking standard of using a credit score as a risk assessment hurts many new borrowers with healthy budgets but limited access to credit. Peer to peer lending is as easy as eBay, people bid on loans based on loan amount and interest rate, ultimately driving down the interest rate for the consumer.

This solution is great for both borrowers and investors. A borrower can get a 3 year, lower interest loan from thousands of people across Prosper.com who can lend as little as $25 per person. With a combined effort from the community, you can get access to a loan of up to $25,000 from people who are just like you. No need to go through the anxiety of heading off the to nearest corporate bank when there are thousands of people willing to help out in a time of need.

For investors, Prosper offers a great investment. A combination of investors spreads out risk and allows people to lend to more borrowers at one time. The creditworthiness of the borrower is shown next to their ID and many borrowers choose to open up their budgets to scrutiny. In most cases, it’s graduated college students who want to consolidate student debts and lower their interest rate.

Prosper.com manages all billing and credit bureau information. One payment is made to Prosper each month that is then distributed between all the investors. This style of lending lowers the closing costs and fees that comes with traditional borrowing and allows people to help others. The returns are rather splendid as well, as P2P lenders have some of the lowest delinquent repayments. Whether investor or borrower, there is a lot to gain from peer to peer lending.

The scratch and dent section is a favorite for anyone looking for utility rather than luxury.  Will that dent on the top of a washing machine really impact its performance by $300.  Of course not, but in this live beyond your means lifestyle, consumers do not want to buy something that has minor surface damage.  The scratch and dent section is great for anyone on a frugal budget, but even better for people who know how to negotiate.  We may be used to seeing a price tag and paying that amount, but for the scratch and dent shoppers, many times you can get a lower price than what you see on the tag.

Huge stores like Home Depot or WalMart practically write their scratch and dents off at a loss.  Its much cheaper to put a huge 40% off sign on an appliance than to send it back for repairs, wait for a new machine or to deal with selling a dented appliance to a consumer.  To sell these products they cut the price.

Knowing that these products are essentially a write off, you have a lot of breathing room to negotiate your own price.  Each scratch and dent product is priced by the individual store, it is unlikely that you’ll be able to find the same scratch and dent at any other location.  Managers and people who are more into the scene at the specified retailer will be able to help you find a price that is in your price range.  If you go in there with an attitude that you are only willing to pay $xxx for an item, chances are that the people in the scratch and dent area will be willing to work with you.

Unlike regular floor products, which have set in stone pricing, scratch and dent sales are a way for the store to clear inventory rather than make money.  They are already losing money on the deal, and they want the machines out the door.  Negotiating a price is much easier than you would think when a company is more interested in dumping a product than making a profit.

Utilities are fast becoming the biggest expense.  Even on a shoestring budget it is easy to make changes that will reduce the amount your pay for utilities.

Cut back on water

Water is an easy utility to control and reduce.  Cutting back on watering the lawn and long showers will greatly increase your savings.  Collecting rain water for use on gardens is a free way to irrigate your garden and keep unwanted chemicals out of your plants.  Fixing a leaky faucet will even make a noticeable difference over the long run, and its likely that if it is leaking, it needed to be replaced anyway.  One trick to lower your water costs is to limit the amount of water you flush down the toilet.  Sink a gallon jug of water in the reservoir of the toilet and cut each flush down by 1 gallon.  This makes a big savings over time and still gives enough water to displace wastes.

Insulation is key

Insulating your garage might not seem important, but it can greatly affect the temperature of rooms above the garage.  Winter weather is quick to make it through the floors and ceilings and into the rest of your home.  A new rubber bottom to a garage door is really all you need.  Small gaps can easily add up, just a 1/8 inch gap at the bottom of a door across a 3 foot door is a total of 4.5 square inches of space.  You’d patch up a 2×2 hole in the side of the wall, why wouldn’t you fix the door?

Program your savings

Install a programmable remote to determine when to power the air conditioning and heater.  Set it to turn off while you are gone at work and to start back up just an hour before you return.  Even a few degrees in temperature makes for great savings.  The amount of energy it takes to heat and air condition a home just 2 degrees much more than you may think.

Cut back on the lighting

Buy compact fluorescent lights to replace normal bulbs.  These put out the same amount of light as traditional bulbs, while cutting energy costs by 75%.  They require a bigger investment in the beginning but quickly pay themselves off over time.  Consider eliminating excess lights from bathrooms and other small areas to save even more.

This is a very difficult question to answer for most people.  You have to factor in pension plans, future social security, and other streams of income before deciding how much you will need each month for expenses.  A good estimate is that you will need 80% of your current income to be generated by an interest rate of 4-5%.  For someone making $50,000 per year, you would need $1,000,000 in retirement funds to live comfortably.

Max out your benefits

You should first try to max out the amounts that employers will match in 401k plans.  Matching funds is free money given by your employer to coerce you into planning for retirement.  A common match is 50% up to 6% of your income, meaning that your employer will give you 3% of your income on top of the 6% that you saved through the year.  You simply cannot beat free money.

Asset allocation

Monthly contributions are best

The best way to invest is to start early and make monthly contributions to a retirement account.  Monthly contributions will help you ride out the ups and downs of the business cycle.  Focus first on maximizing retirement benefits then start applying money to other accounts such as IRAs and other retirement portfolios.  Employer matches are low hanging fruit–pick it first.

Tax time is here and in full swing, and if you’re like the average consumer, you likely paid thousands in interest and other charges due to high debts.  Now there is a way to consolidate your debts into one low interest monthly payment and still be able to deduct the interest.

Home equity lines of credit (HELOC) have become very popular over the last decade thanks to the real estate boom.  A HELOC is a line of credit against the amount of value you own in your own home.  Thankfully, the government sees this just like a mortgage and will allow you to deduct your interest expense on your tax return. 

A home equity line of credit works just like a credit card, although this form of payment usually comes with checks rather than plastic.  A HELOC can be used to pay for almost anything your credit line will allow.  Many people have used them to improve their homes, add a pool, take vacations or even to buy groceries and pay monthly bills.  A HELOC provides the flexibility of a credit card with the low rates of a home equity loan.

How it works

A home equity line of credit is backed with the equity in your own home.  For homeowners who have been in their home for a long time, a high credit line HELOC should be easy to obtain.  Generally you can borrow up to 80% of the equity in your home.

Unlike a home equity loan, a line of credit can be used whenever you want, for whatever you want.  Most home equity loans are only for even dollar amounts and come with high closing costs and fees and cannot be changed or used at the borrowers convenience.  With the simple stroke of a pen,  a borrower can fill out a check to pay for virtually anything which will then be charged against the HELOC account.

HELOCs usually have much lower interest than credit cards and have become popular for eliminating credit card debt.  Many consolidation programs tout the easy credit lying in your own home as a way to pay off credit card debt in small monthly payments.  Unlike HELOC interest, credit card interest is not tax deductible.

Anyone with any equity in their home should apply for a HELOC just to have in case of emergency, debt consolidation or future use.  To consolidate debts, all a borrower has to do is write out a check for the amount of the debt and send it to their creditor.  The credit card debt will be removed an added to the HELOC debt. 

Interest deduction

Any debt can be put into a HELOC for interest deduction.  Credit card debt and personal loan debt is the best for consolidation because it is usually high interest and not tax deductible.  HELOCs have rates that are usually 8-10% lower than most credit cards, making them a bargain right from the start.  With a HELOC rate of 8%, the effective rate is dropped to 6% when you consider the tax breaks.   Anyone with high balances and high interest accounts should apply for a HELOC for instant debt consolidation.

Finding and clipping coupons is a quick and easy way to save on products you buy anyway.  Most name brand companies publish coupons in an attempt to promote their products, or to make them more appealing to the everyday savvy saver.  Some coupons make buying the name brand cheaper than buying a generic– those are the kind of coupons we’re looking for.

REAL double coupons

Very few people know that it is possible to use two coupons on products.  For most brands and stores, it is possible to use a manufacturer’s coupon and a store coupon.   It is important to first check with the customer service desk rather than a cashier for a more knowledgeable answer, but most stores will allow the use of two coupons if they are from two different sources. 

Double coupon stores

The ordinary double coupon deals are rarely as good as they sound.  Some groceries allow customers to use a coupon and receive savings equal to double the value of the coupon.  These discounts are usually limited up to $.75 or $1.  Unfortunately these deals are only found at high end stores, which might be more expensive than discounters even after the coupon.  Double coupons are the best for products that normally do not have coupons, such as milk, bread, meat and most produce.

Price match to save

Price matching is the best coupon known to man.  Shopping at a store that allows price matching will let you get the lowest prices you see in your Sunday paper while making just one stop.  Granted, not all sales are published, but the best ones generally are.  Be sure to look for stores that price match to get the most out of each trip.

Other stores offer coupons as well

Groceries aren’t the only product that offers coupons.  Department stores often run coupons for a discount after spending a certain amount of money, for example, save $10 for purchases over $50.  These coupons are great if you plan on spending that much anyway, but don’t go out of your way to qualify for the savings, this is like spending a dollar to save a penny.

Gasoline is very expensive, and there is not much hope of it getting cheaper any time soon.  There are some methods to saving money on gas, even if the prices are sky high.

Lose some weight

You should first look into your own car.  Leaving folding chairs, groceries, and salt in your car increases its weight and lowers your gas mileage.  Shaving just 100 pounds from your cars weight will increase gas mileage by a few percentage points.  Properly aired tires will roll better and reduce friction, also improving gas mileage.  Air filters and other components should be changed regularly as well as they can affect how your engine performs.

Gas Credit cards

The next step is to apply for a gasoline only credit card.  Certain gas stations give cash back for purchasing gas at their stations with their credit card.  Gas cards give up to 5% cash back for regular purchases at the name brand gas stations.  Some general purpose credit cards, like the Amex Blue or Chase Freedom give 5% and 3% cash back respectively.  A 5% savings is like going from 20 mpg to 21 or cutting the price at the pump from $3.00 a gallon to $2.85.  As you can see, there is a lot of money to be saved by using a cash back card.

There are speed limits for a reason

Driving the speed limit is another guaranteed way to save on gas, but can be hard to do for on the go drivers.  Very few people understand that driving even 10-15 miles per hour over the speed limit saves just a few minutes on travel time, but greatly decreases the efficiency of your engine.  You will see an instant improvement of 20% when traveling at 55mph rather than 70mph. 

Short trips ruin gas-mileage

Your car might get really impressive gas mileage, but short trips will greatly dismiss the benefits.  Short trips of 5 miles or less use much more gasoline per mile than long trips.  A short trip to the store will often yield a mpg ratio of 5-6. 

Saving an extra $100 per month will give your budget additional flexibility. There is a lot you can do with $100, such as paying down high interest debt, saving for future expenses, or even a luxurious vacation.

Cut the luxury

Small luxuries are the first place to look for cuts. Look into your wallet at the beginning of the week and at the end of the week, chances are that the small bills go quickly and you never have anything to show for it. The $4 cup of coffee in the morning, a $.75 candy bar at lunch and a gumball at the store might seem like a small amount at first, but this adds up to $150 per month.

Insurance premiums are out of this world

Insurance premiums are another place to save some additional cash without risking financial safety. Raising the deductible on your home or car insurance will drop your premiums by 25% or more. Increasing your deductible from $500 to $1000 will free up a significant portion of your budget while only adding additional liabilities if an emergency occurs. Why pay an extra $600 a year for just $500 more in protection on your car? Call your insurance broker and lower your deductible immediately.

Invest in cost saving devices

Invest in your future. Changing out light bulbs or your shower faucet head can bring instant savings in electric and water bills. New light bulb technology drops electricity use by 75% while still delivering the same amount of light. Low flow showerheads limit water usage but can still deliver the pressure that you enjoy from your traditional shower head.

Saving the small change

Start collecting spare change. The small amounts of money is quickly lost or spent on things we do not really need. The “gotcha” stores with the $1 items might sound cheap at first, but when you realize you have no need for them, they are no longer doing you any service. Start saving the small change and it will quickly add up.