I love budgeting. Three words you don’t normally hear from a 23-year-old guy. If you make it all the way through this monster post, I’m fairly certainly budgeting will start growing on you too.

My wife Niki and I took the 13-week Financial Peace University course by Dave Ramsey and decided to put a budget into action when we got married. We’ve been following it faithfully for the last 7 months, and it’s been unbelievably freeing.

There are lots of great tools for knowing where your money is going (I personally use Mint.com because the graphs are just so pretty), but these tools are often reactive instead of proactive, which means by the time you see how much you’ve spent it’s already too late.

Creating a budget (or cash-flow plan for you hipsters and business elite) allows you to spend every dollar on paper before the month begins.

We use the envelope system, which means we take out cash at each pay check and put it into corresponding envelopes for a number of categories: Groceries, Entertainment, Personal, Cosmetics, Gifts, Weddings, Dry Cleaning, License Plate Renewal, etc. (Dry Cleaning and License Plate Renewal? Crazy, I know, but it’s what helps you keep your budget balanced).

What’s great about using envelopes is that once you run out of cash in an envelope, you know you’re supposed to stop spending. It’s hard to exceed your budget if you don’t have any money to use. It’s not going to be perfect your first month and that’s ok. Adjust where you need to, but don’t throw the baby out with the bath water just because it’s not perfect your first time around.

I can’t even venture to guess how many fights this has eliminated in our marriage. We review our budget each month and tweak things as necessary. We’re always on the same page, we know where every dollar is going, and we haven’t exceed our income (but we’ve definitely had to move some things around). More than anything, it’s allowed us to be faithful with what God has given us.

It’s freeing to know we’re allowed to go out to eat, to the movies, to buy an app we really want, or to have money set aside to be in our friends’ weddings. When you have a budget, your money is earmarked for certain things, and it brings freedom and moderation to your life.

I’ve included the spreadsheet we use for budgeting that’s been tweaked for your use. My favorite feature is the automatic currency denomination calculator (read: it tells you how many 1s, 5s, 10s, 20s and 50s to take out of the bank automatically) on the sheets labeled “Round 1” and “Round 2”. After you plug in the amounts you need to with draw from the bank for each envelope, the chart at the bottom automatically updates to tell you what denominations you need to take out of the bank so you can put the exact amounts in each envelope. It’s a huge time saver and it makes me look like an Excel trapeze artist.

If you want to start using the Dave Ramsey system but can’t take the Financial Peace class, I suggest buying and reading Financial Peace Revisited as soon as possible.

If you really want to get knee deep into these things, here are some technical and practical things we do, which may not work for everyone (and Dave may not explicitly approve!)

1. If we buy something online (which we do nearly daily), we move the money from the corresponding envelope and put it into the Bank envelope that essentially functions as the bank for our next round of envelope budgeting.
2. For car repairs, we had a pretty hefty balance building, and I didn’t feel comfortable keeping the cash around the house, so we deposited it into our savings account. We saved the envelope with the balance on it, and created a new sheet on our budget worksheet that lists how much we still have in that (now electronic) envelope, so we don’t confuse that money with our emergency fund.
3. One of the trickiest things we’ve run into is when you’re buying products that draw money from multiple envelopes at the same store. What we do is pay for everything from one envelope (say, Groceries) and transfer the money from the other envelope once we add it up from the receipt (from Cosmetics to Groceries). It’s easier than putting everything on a card, and if you don’t want to ask the cashier to ring you out twice or even three times, it’s the next best solution we’ve come up with.
4. Niki uses Dave Ramsey’s Designer Envelope System for our most used categories: Grocery, Home, Entertainment, Blow Money, Cosmetics and her own personal allowance. I don’t carry it around since she does the grocery shopping and because I haven’t figured out how to carry a red clutch and still feel manly. If I need to pick something up I’ll just grab the cash from the envelope or shamefully carry her red wallet with me to the store. In a pinch, I’ll use my debit card and we’ll take the cash out of the envelope and move it to the Bank envelope when I get back.
5. One of our budget categories is Wedding, for gifts and expenses related to weddings we attend or participate in. Since we didn’t start our budget until September 2011, and we had some costs for a wedding in June 2012, we are effectively “in debt” to our wedding envelope. Basically, we spent more than we had in the envelope to reserve my tux and buy Niki’s bridesmaid dress, and we recorded the cost on the envelope. Each month, we apply the money we’ve set aside toward that negative balance. So, if we’ve budgeted $50 a month for weddings, and we owe $150, this month we’ll be down to -$100, and the following month, -$50. Obviously we won’t put actual cash in the envelope until we’ve reached a positive balance.

What do you do to budget? How effective has it been?