A financial lesson that isn't terribly entertaining.

So here's the world-famous Envelope Accounting System, designed and created by my friend Ingrid. She is one of those people who probably doesn't need it, because she's actually able to control her spending and isn't impulsive because she realizes the value of a dollar. That's why I'm sure she's actually from another planet. That and the fact that she balances her checkbook. Every month. (Is that even legal?)
I spent a few evenings with her working out a personal budget and plan because DH and I felt like we had no idea where our money went but, alas, it was gone.
The first thing we did is figure out how much we earned per hour. You take your net wages (so what REALLY goes in the bank, after your contributions to your 401K, Uncle Sam, etc.) and divide them by 24 hrs. (A novel idea, because really, who cares how much you earn in 8 hours if you live for 24?) I think ours worked out to something like $3.00 an hour (or maybe it was .30.) Then when you go impulse-buy that shirt for $30.00, ask yourself whether you'd want to work for 10 hours for it. Maybe, maybe not. But at least you have a better appreciation for it.
And a few rules help keep your brain in the game.
Rule #1: The ATM is not your friend. It gives the impression that money grows on trees. And it's a theif. For example, if on vacation you decide to use Bank of Canada's ATM since you don't know where the Santa Fe Knothead National Bank is, expect to lose major cash. That $40 you get out probably cost you upwards of $45. Bank of Canada charges $2.50 (let's say) and SFKNB charges an additional $2.50. So you're losing ground.
Rule #2: Use cash whenever you can. It hurts more. You will spend less.
Then you begin Envelope Accounting. Here's a step-by-step guide:
1. Get a stack of envelopes and title each one into expenses. This includes different categories. Ours were: Groceries, Vacation savings, Clothing, Gifts, Auto Maintenance, Gas, Fun household (wall pictures, dishes, pillows, etc), Entertainment (incl. eating out), Auto misc (car washes, etc.), Education (incl. classes, software for computer, etc.), and Vitamins and medications (this is esp. good to separate out if you ahve a medical savings account with your work). I think my sister does a more simplified envelope system involving only about four envelopes, which works too, but I'll get to this first.
2. Take the amount of pay you receive per 2 wks or month or whatever. Take out what you pay for bills and house and car payments. What's left is going into envelopes. So say you have $600 left over.
3. Go to the bank. Inside, where the humans are. (Remember Rule #1.) Each pay period, I would go to the bank and take out our cash in specific bills. We had allotted $300 for groceries, $75 for entertainment, $25 for gifts, etc., and put those exact amounts in the appropriate envelopes. (When I went to the bank, I'd get X# of $50s, $20s, $10s and $5s, etc., so I wasn't trying to remember that groceries owed gifts $5, because then it messes up the whole point.)
4. Put the cash in the appropriate envelope and spend accordingly throughout the week. My sister is quite good at this part. If there's only $5 in the grocery envelope and they don't get paid for a few days, it's leftovers and cereal at their house. (Let's hope you aren't visiting them at the tail-end of a pay period!) If you want, you can borrow from envelopes, but beware...
5. Some envelopes like Vacation and Auto maintenance would start adding up and I would eventually put those into our bank account because I wasn't crazy about having $800 in cash in my house, but I would have a paper tally of what was for what. Here's the main point though. If you're at the grocery store and don't have enough bread for your bread, borrow from something else if you must, or... put something back. When you figure you are stealing from your vacation fund, your weekly need for Brie might be reduced.
6. (Optional, but keep reading) My friend set me up on Quicken and my husband and I kept track of our cash transactions. It was amazing how much money we spent on unexpected items. Like gifts, for example. We had allotted $25 per pay period for saving for gifts. That amounts to $650.00 annually, which sounds like a reasonable amount to spend. With the 20 people in our immediate families, that works out to $32.50 per person including the card. And that doesn't count a single shower, wedding, etc. You'd be shocked at how much trivial things start to add up. But I say it's optional because it's a bit time consuming. I had a hard time keeping up with receipts and with things that don't give your receipts like the farmer's market, etc. It's good to do because we had no idea where the money was going, but now I just do it in random 1 or 2 month periods because I can't stay ahead of the receipt pile. (I know, Ingrid, this is probably the most important part. Comment, please!) At least now, it's not quite so vague who gets our dough.
That's really all there is to it. It's called living within your means and it is hard. I don't know how our grandparents did it, since they didn't have credit card offers in the mail every day. But they did do it, and so can we.