Ahh…an allowance.  Most people can think back to a time when they were young and had to do chores, etc. to earn one.When I think back to my allowance days, I somewhat remember the drudgery of completing my chores, but I mostly remember the feeling of receiving my weekly allowance.Unknown to me at the time, this was my first foray into the world of personal finance:  I did my chores, I earned the $$, and I alone decided how to spend or save said money (the latter changed from ice cream cones to clothes to savings accounts for cars, college tuition, and trips).

Enter the realm of the adult allowance.

While the $5 bills have been replaced with multiple paychecks and the spending/saving decisions now involve mortgage payments and Roth contributions, the same idea can still apply:  I have a set amount of $$ and that’s all I can spend.  What a novel idea!  Here’s how I (and you) can effectively utilize the concept of an adult allowance to meet your financial goals:

Set your budget

Ugh, snore, sigh, etc.– despite your love or hate of them, setting your budget is the first step in any process of achieving financial security/freedom.  What goes in usually comes/goes out, so it’s imperative to know WHERE and HOW it’s going.  Include all fixed expenses that are paid out on a monthly basis.

Account for savings/investing

After you budget for your fixed expenses, the $$ left should be divided between savings and variable expenses.  Remember to pay yourself first!  Decide on your set savings totals and automate, automate, automate.  It doesn’t matter if it’s $25 or $2,500–send some amount of $$ to another account (and leave it there).

Estimate variable expenses

There are many ways to do this:  spending journals, various tracking methods, mint.com/financial software, etc.  Make sure to include things like food, gas, entertainment, etc.  Most importantly, be honest with yourself.  If you’re a 5-a-week latte person, that must be included!

Decide how you’ll establish your “allowance” and what it will include

If yours will include going out to eat but not groceries, so be it.  Choose your amount and give it to yourself–in CASH.  There’s something about having that cold, hard cash in your wallet as a visual reminder that once it’s gone, it’s gone.  Numerous studies have also confirmed that fact that we tend to make better spending decisions when buying with cash.

Stick to it!

To reiterate, once it’s gone, it’s gone.

Give yourself a cushion

The beauty of a budget is that it’s constantly changing & evolving.  It may take some time and trial & error to figure out exactly what works for you.  Be patient, be proactive, and be diligent:  the hard work will pay off!

Some final tips to remember:

• While we’re hard-wired to adapt to change as human beings, that doesn’t mean it’s easy to do.  In fact, it can be hard as hell.  Stick to your guns and roll with the punches.  Eventually those little kinks/aggravations will work themselves out.
• Remember that it will get easier!!!
• Re-evaluate when necessary–don’t be afraid to change something that’s not working.
• Look at the glass as half full.  While it’s never fun to spend less, it’s always fun to see a savings account balance grow or to obtain/maintain financial security/freedom.
• Celebrate the milestones no matter how small or large–revel in the fact that your hard work and good choices are paving the way for success.