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The unique budgeting system that helped this single mom pay off $77,000 in debt

Kumiko Love developed a three-step plan to manage her spending and get out of debt. Here's how she did it.
Image: Kumiko Love
Kumiko Love, the founder of the popular personal finance blog The Budget Mom, used a variety of methods to get out of debt.Jennifer DeBarros

For years, personal finance expert and single mom Kumiko Love, 33, struggled to pay off her student loans. Even with a successful career in finance, everything she tried to do to pay off debt failed.

“I tried every budgeting method out there,” Love tells NBC News BETTER. “Percentage budgeting, calendar budgeting, I tried the cash envelopes, I tried the half payment method, I tried monthly budgeting, and every single time at the end of the month I would come up short.”

Love, founder of the popular personal finance blog The Budget Mom, realized that managing her spending and debt was much easier if she focused on budgeting for each paycheck instead of trying to budget for the entire month.

“When I started budgeting my money by paycheck every single time I got paid, and I was allocating every dollar for a purpose when I received my paycheck, I started finding myself succeeding, I started finding myself actually saving money and having more to throw down towards debt,” Love says.

So she developed her own system, which she calls “the budget-by-paycheck method,” which helped her pay off $77,000 in three years.

She says the method is really three methods in one: the calendar method, the cash envelope method, and the paycheck method. The system can be customized to your unique budget, she says, and will help you visualize your goals. Here’s how it works.

First step: Create a calendar budget

Using a simple monthly calendar, you’re going to write down any upcoming expenses you expect to have in the next month: When the rent will be due, appointments, holidays, events, vacations, school activities — “all of those different things that we don’t really remember to plan for in our budget,” Love says.

“It’s making people realize that the budget isn’t just about your bills,” she adds, “that things come up in our life that most of the time we’re not financially prepared for.”

Second step: Paycheck budget method

The next step is to create a budget for every paycheck you receive, based on upcoming bills, variable spending like food and clothes, and the expenses you’ve noted in your calendar for the upcoming month.

But before you can create your paycheck budget, Love says you need to have a realistic understanding of your actual spending.

First thing’s first: Track your spending

Many people struggle to budget because they don’t have a realistic idea of how much money they spend, says Love. For example, if you think you only spend $400 a month on groceries when the actual amount is $1,000, your budget is going to be off, she says.

“I’m a huge believer that you cannot create a realistic budget that will work for you until you know your realistic spending,” she says.

Before you develop your paycheck budget, Love says to track your spending during the current month. At the end of the month, you will review your actual spending and develop your budget based on that, she says.

She adds: “When you track your spending you’re going to get your realistic categories you should be using in your budget, and it’s going to identify your regular, recurring expenses or monthly bills.”

Create a zero-based budget for each paycheck

Once you know your realistic spending, you’re going to map out your budget in the Paycheck Bill Tracker (check out this template on Love’s website). Note there are four different categories in the tracker:

Bills: All your recurring monthly bills

Sinking Funds: Non-recurring expenses which you’ve noted on your calendar (holidays, birthdays, etc)

Envelopes: Cash you will set aside for variable spending like groceries and clothes (discussed in Step 3 below)

Extra Savings: Money that is left over, which you can use towards your long-term financial goals

Using the zero-based budgeting method, you’re going to give every dollar in these categories a specific job.

Fill out your paycheck bill tracker several days before you get paid. Love says this will prevent you from making sporadic money decisions.

Third step: Develop your cash envelope system

Now that you’ve got your paycheck budget worked out, you need to withdraw cash for your variable spending, and put the specific amount for each category in envelopes dedicated to those categories (groceries, clothing, entertainment, etc.)

“You pay your bills online,” says Love. “Everything else, you pull out for cash spending, which comes into play the cash envelope method.”

Paying for your variable expenses with cash instead of a credit or debit card will prevent you from overspending, according to Love.

“It makes your budget tangible,” she says. “When you swipe a debit card, we’re not forced to look at the big picture and the tradeoffs of our spending.”

Focus on big goals

Once you’ve determined how much money to allocate necessities and variable expenses, you can figure out how much you are going to set aside for long-term goals, whether it’s paying off student loan debt, saving for a down payment on a house, paying off your mortgage, or creating an emergency savings fund, Love says.

You’re going to track these long-term goals in the right-hand side of the paycheck bill tracker, under the “extra savings” column.

When Love was paying off debt, seeing how much she contributed to her debt each paycheck helped her visualize the progress she was making, and encouraged her to keep working towards her goal.

“I would flip literally three months in the past and see where I was then and compare it to where I was now, and it was massive progress even though we don’t realize when we’re doing it little by little,” she says.

Start small and be realistic

The budget-by-paycheck method may seem overwhelming at first, says Love. She says to take baby steps, and focus first on tracking your spending. She says you also need to face the reality of what your budget is, rather than what you want it to be.

Love says that paying off her debt felt “amazing.”

“The word ‘impossible’ is something I’ve thrown out of my vocabulary,” Love says.

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