The best thing we have ever done is establish a budget. Most people think that having a budget means you are cheap or don’t spend any money. This is not true! Having a budget just means you know where your money goes each month! Ours is very detailed. We have line items for the kids allowances, food, household supplies (hygiene, cleaning), mortgage, entertainment, utilities, everything! When we did it originally, it was a pain to do, because I set it up in Excel with all the formulas to subtract what we spent as we went through the month so we knew how much was left. We also had expenses subtracted from income so we knew each month how much cash was left over. We also had line items for savings and taxes, so we could move it each month to somewhere safe so that when the time came, we would have it.
It is not about being frugal, although once you know where everything is going and how much is actually going there, that might be a byproduct… Each month, for example, we know that we spend about $400 on food, so that is our monthly food budget. The way we have it set up, we can go over by a little or under by a little, but we would expect that over a three-month period, the budget would be pretty close or even under. (Another thing I did was do quarterly formulas so that every three months it takes the budgeted amount minus the three months of actual so we know this. I am anal retentive that way!)
So how do you handle things that are once or twice a year and not each month? We just take what we would pay a year and divide it by12 for the budget. So, for example, with car insurance, which we pay twice a year, we know that those monthly budget amounts should be $0 for most of the year and go way over budget when they are actually due, but we know that and the other budget amounts can either make up for it that month, or we know that we will still be under budget for the year. You can also put aside the amounts on the monthly budget so that when the payment is due, the money is saved and available. Some people swear by cash in envelopes for this. We have not gone that far, but have thought about it for a few things!
There are a ton of websites that have articles on budgeting. I recommend geezeo.com (which has great articles) and wisebread.com (which has a blog and forums too!)
We did not do it for years and I know it is hard to set up and keep up, but it is SO worth it! In the time since we have had it set up, we were able to switch responsibility for finances from me to DH with minimal work because it was all right there. We also had job changes and all we had to do was change the income line. From there, it was easy to see what expenses had to be eliminated or reduced when the income went down or when the income goes up, which expenses stay the same (utilities, mortgage) and which you can increase (savings, allowances).
In this economy, it is even more critical to get a handle on where the money goes. Studies have shown that most people severely underestimate what they spend. It is like estimating your calories. You don’t count a bite here and a bite there, but they all add up. Similarly, a dollar here and a dollar there is no big deal, but they add up!
One of the things that DH and I had trouble with was telling each other EVERYTHING we bought. So we agreed on a certain amount (less when we had less money) and it is our “monthly allowance.” Each month, we get to spend that much on whatever we want to spend it on. So for DH it is video games or magic tricks. For me, it is pampering or knitting supplies. But that little amount goes a long way in making me feel like I have some control over my own money and even though we have budgets for most of it, this is unbudgeted MY money!