In my last few Fribbles, I've detailed how I decided to go Credit Cardless. Doing this led me to a discovery about household budgeting. When using credit, inefficiencies in the household budget are hidden. If you are going slightly over what you are paid, you don't notice it right away. In time it builds up, though, and you end up in debt and don't know how you got there.

Once you decide to live debt-free, a lot more planning is required. How do you go through a pay period with enough money, and invest at the same time? The first thing I have done, and actually started years ago, is pay myself first. Invest immediately, don't use what's left over; generally nothing is left over. Sometimes, for the undisciplined among us, an automatic investment program is helpful. Many Dividend Reinvestment Plans (DRIPs) offer this, or you may choose to have automatic transfers to savings accounts, etc. I found that "cash" has to be one of the investment options in my portfolio; I'll get to that later.

Now, once the budget is started, and you have to get from here to there without dipping in debt, the cutting begins. Bad habits show up fast, and are easiest to correct. For me, the first (as I mentioned in an earlier Fribble) was eating lunch out every day. Now, I don't like eating at my desk, and I generally won't. However, where I work, we have a decent lunch room, and I can watch CNN while I eat. This was an easy place to cut the budget. From here, things get a little more difficult. I looked at utilities -- ugh! We've had a warmer winter, and we burned more gas. Why? Strangely, the thermostat was set too low. As the house felt too cold, we cranked up the heat with the manual override. Electric bills were too high also; it took more discipline to turn off lights, TVs, etc. Finally, it was time to dump good old AT&T. While they've always been there, come on, long distance service is a commodity. I don't care if they have nice ads; I'm saving money. Other bits of wasted money jump out. The premium channels on cable come to mind. They never show the movies we want to see when we want to see them anyway. The stuff we do watch is all on basic cable. Oh yeah, we dropped all those neato extra things on the phone service we never used (voice dialing and stuff).

What makes things expensive? Often it's the information that is put in them. The plastic, glass, copper, steel, and little bits of gold in this computer probably are worth about $50 to $60 as commodities. Built into the computer they are worth about $50 or $60 about a week after I bought it -- well OK, $2,000 to $3,000. The same goes for food; the more it is refined, the more you pay. Sliced turkey lunch meat is more expensive than an uncooked turkey breast, which costs more per pound than a whole turkey. Of course a turkey egg is pretty cheap. You could hatch the darn thing, feed the chick that raw oatmeal you have in a barrel, and in a couple months, turkey dinner! It depends on how much information you want to put in something.

Another example is your car. The information is how the parts are put in. The parts, of course, are much more expensive than the raw materials that make them up. When I was younger I would do absolutely everything to my cars; today I don't have the time. Also, cars are a bit more complex today. How far do you go? This is a decision that only you can make, depending on the time you have available and how much patience you have.

Now, as part of the budgeting process, one has to prepare for unforeseen items. This is done with a cash reserve. How much do you need? The best answer is a lot. Figure $2,000 is needed to cover most emergencies, such as the refrigerator dying, the water heater leaking, the car needing repair, and so on. What about loss of job? Or something you see that you'd like to get? Quickly we're up to 3 to 6 months salary in savings. Beyond that, you are missing investment opportunities. To build up the cash, I recommend considering it an investment. Keep it in a separate account, not in checking. Banks generally pay lousy interest; I suggest a credit union or a money market account.

It isn't easy to live on a budget; it takes planning and discipline. However, it gives you control over your finances, and takes you one more step away from going from crisis to crisis. That's a Foolish way to live.