Budgeting Question

I've decided it is time for us to try out a budget.  We are getting ready to take on a new mortgage and until we get adjusted to making that payment every month I want to track our spending and make sure we aren't spending beyond our means.  I've sat down and written out a budget using our bank statements from the past few months.  Here is what I'm wondering.  I want to budget money for things like vacation/travel, auto repair, and even Christmas/birthdays.  Since those aren't regularly occurring expenses, how do you handle that money?  Do you just transfer that amount from checking over to savings and keep a record of what you have in there for those things, or do you withdraw cash and keep it in an envelope or something until you need it?  Second question, if we don't spend our whole grocery budget or dining out budget and don't go over on other things, what do you do with the leftover money?  Do you transfer it to savings at the end of the month, or just leave it in checking and let it accumulate?

Erin mentioned it already, but YNAB is a great program to deal with overages and future expense planning since things carry over so well. It's one of the main perks of it. For things like insurance I take the bill and divide it by however many months then use that to budget. Each month that amount is "spent" so when the bill comes due I have the full amount to send in. And for overages, you can choose to have them transfer to the next month in the same category (ie. groceries) or to the general "buffer" amount. Same with deficits - you can subtract them from the starting buffer for the next month, or the individual category. It's all how you want to tailor it to suit your needs.

Have you read about the 60% solution?  We used this method because of wanting to save for vacations, gifts, etc. and it worked great.

http://money.msn.com/how-to-budget/a-simpler-way-to-save-the-60-percent-solution-jenkins.aspx?page=2

We did a combination, money being carried over for bills like car insurance etc got transfere to a savings account so it was easy to transfer back when we needed to make the payment. Other items like vacations, furniture etc we did the piggy bank method. And really it was so exciting to see the money in hand growing and knowing how close we were getting to being able to buy wahtever it was we were saving for. Good luck!