Have you had success using this method to get your finances under control? The mister and I have a good grasp of our budget and make more than we owe, but the spending gets away from us each month, and we are looking for a new system.
We already record everything in a spreadsheet each month and pay everything possible online. Pay nothing with credit cards. Pay mortgage twice a month. And I meal plan and grocery shop twice a month - only go back to the store for milk and fresh veggies/fruits. I hand over my debit card and get $40 a week.
Still with all these steps we are way overspending on going out to dinner, little things that come up for the kid, and so on. I think largely it is a question of willpower - of actually saying “no we can’t afford to eat out today” and actually sticking to it.
Since we don’t seem to have that willpower on our own maybe the envelopes will make us do it? I’d love to hear anyone’s experiences with this kind of money management…or to hear any other advice.
I tried the envelope thing when I was much younger. It didn’t work. I didn’t have the willpower.
You may want to try a scheduled night out…maybe once every two weeks or once a month. Don’t do it just because you feel like it (or feel you deserve it…we already know you do!). Just write it on a calendar. And stick to it.
You may try creative ways of funding that night out as well. You can put your daily leftover change in a jar, and whatever you have on “date night” determines how good a time you have. Or set aside money you save by looking hard for deals/sales, and party on that. Or whatever. It’s hard. The envelope thing was just too easy for me.
My wife and I have used the envelope method for the last 6 years. We now use it only to regulate how much we spend on eating out and other entertainment, but we used to use it to handle groceries, gas, and sundry expenses as well. We spent the first several months with our ATM cards locked in a filing cabinet, but once we got into the habit, it worked wonderfully.
It does take some willpower, and our main reason for using it was so we wouldn’t always have cash on hand (we spent, and still do spend, cash far more freely than we wrote checks or used cards).
I find that no system works as long as you still have easy access to the cash. I have been moving (via web transfer) a fixed amount out of every paycheck into savings on the same day it gets direct-deposited into my checking acount. I make sure I leave myself with enough to pay the bills plus a predetermined amount of spending money.
I do this not so much to build up my savings, but just so that the extra money isn’t in my pocket or right at my fingertips (via ATM withdrawl).
If something happens and I really need the money, I can always go online and transfer money back into checking, but that takes one business day to complete. The transaction delay prevents me from using the money for impulse purchases.
It works well for me, but that’s not to say that it would work well for anyone else. I use it for pretty much everything, because I’m absolutely horrible about spending money that’s in a checking account. Somehow, I always manage to dig myself into a hole, and I’m never quite sure how I got there. I set aside enough cash to pay bills (and I literally set it aside usually, so it doesn’t get comingled with my grocery and discretionary funds), and put a certain amount in my wallet. What’s in the wallet has to last until next payday, barring unusual circumstances. This forces me to pay attention to what I’m spending and what I’m spending it on.
I’d give myself a daily budget and put that amount in envelopes for each day. Any leftover money was “fun money” for the weekend.
I’d set aside money for making house payments and groceries and such seperate from the “daily allowance money.”
I will agree that cash spends easier - so when I had a $10 bill in my Monday envelope, I’d often buy a pack of gum or something I’d have never spent when I was restricted to the cash card. But the cash card spends in large amounts easier.
I have Quicken software and what I do is when I get a bill I put it into the Quicken for the day it is due. (I use electronic bill pay from my bank) So really my Quicken runs about two to three weeks ahead. I also sit down at the quicken and check it against my online bank statement everyday. This way I can look and see how much I have left for this paycheck and next paycheck.
I also keep an excel chart of my monthly bills. (snicker) Basically I cross off each bill on the chart so as I look at it I might notice that something is not paid yet. (Sometimes they forget to send me a statement) That way nothing gets past(due) me.
He advocates the “envelope system” that you’re talking about. I was able to get out of debt a lot sooner than I ever thought possible by following Dave’s advice. You sound very disciplined already, perhaps this will be the little bit of fine-tuning that you’re seeking.
Quicken software has the ability to do virtual envelope budgeting. It’s called Savings Goals, and I’ve been using it for years. This allows you to create “fake” savings accounts and transfer money from your real accounts. Quicken manages the illusion and hides the money as requests. A toggle lets you see your real account balances. It works very well. Unfortunately, Microsoft Money doesn’t do this, even though it’s among their top requests.
We paid off a house, got out of debt (about 5 grand worth) and paid cash for a nice car within 4 years by learning and using the envelope system. It was hard at first, I still like to spend like a sailor on leave, but when I look in the “fun” envelope and see only $12 it actually stops me.
And in 3 weeks I’m flying 1st class to Los Angeles to go to a fancy victorean dinner dance. (don’t be impressed, it’s a free ticket).
Larry Burkett’s Crown Financial Ministries were the basis of the system that the guy who taught me used. Granted it’s Christian, and so may not appeal to all, but the principals are sound and I can vouch for it’s effectiveness.
BMalion, Dave Ramsey also recommends Crown Financial Ministries (and speaks highly of the late Larry Burkett - hope I spelled that right). Dave explains the difference between Crown’s program and his is that Crown is strong on the biblical teachings and Dave’s is more financial information with a biblical foundation (though not enough to put off someone who believes differently, I say that as an agnostic).
Zebra, the envelope system consists of budgeting for the pay period and taking cash out of the ATM equal to what you will need to spend. You have different envelopes for each category, such as Food, Entertainment, Gas, etc. You put the amount of cash budgeted into each designated envelope and then you only spend what is in your envelope. It helps you stay disciplined. Of course some people will scoff at how “unsophisticated” it is, but they’re probably deeply in debt. This way takes some getting used to, and you may have to increase/decrease the amounts you put into each category.
I don’t use actual envelopes, but I follow the principle. I take cash out of the ATM every two weeks (once in a while I have to go back to the ATM, but not often) and paperclip my money into categories that I’ve budgeted out for that two week period. I label each one with a sticky note and carry it in my wallet. I’ve been debt-free for two months now (I am a renter, so I don’t have a mortgage) since I paid off my car, which was my last debt.
This way takes some getting used to, and you may have to increase/decrease the amounts you put into each category.