Envelope system`

[Diolla]

Someone in another thread was asking about easy budgeting and this is the easiest method I have found-

Every month/paycheck I set aside an amount for certain variable expenses. Anything that is paid face to face is an envelope-I have envelopes for-

Groceries-food only
Gasoline
Household-paper, batteries all that misc stuff
Allowances
Clothing
Gifts (including Christmas)
Medical (co-pays & prescriptions)
Spending money-mine to use how I want
Pets-food, supplies,vet
School-lunches, supplies, bus pass (for my DS), during the summer it builds up to pay tuition and books in the fall (he is in High School)

They are real paper envelopes that I fund every payday

For bills I leave enough in my checking to pay any bills due before my next payday and a small cushion ($50). I use auto online billpay (free at my bank) for all the fixed bills.

For periodic expenses/savings I transfer the money to my online mm account-this is for

Property taxes (every 6 mths)
Car and Homeowners insurance (every 6 mths)
Car Repairs
Savings for a newer car
Emergency fund

Some of the envelopes get spent completely and some build up until I need them. There is never extra money lying around my checking account ready to impulse spend away and if I get sick (I have a chronic illness) most of it is handled automatically so my bills get paid. I figure I spend an average of 30 minutes a month, including going to the bank for my cash, getting my finances taken care of. The hardest part was getting it all set up, how much does each envelope need? At first I had some of my envelope categories in savings (like gifts) but then some little thing would come up almost every month (wedding, b-day, graduation) and I would have to pull it out so I just started making an envelope for it. The intrest I would earn would be negligble.

[Broken Arrow]

Ah, the good old envelope system.

That's how I started out too and I still use it from time to time, especially with things that I often forget. This year is the first year that I've ever saved to fund birthdays and Christmas. I have this forum in part to thank for that.

[lillyb]

I follow pretty much how Diolla describes. I have a fixed amount of cash I withdraw every payday, with that I fund 3 envelops: blow money, grocery, and gas. I then pay the bills. Everything that is left over gets sent to debt. Been working mighty fine for about 10 months now.

[Ima saver]

I have done the envelope systerm for 41 years, except I put everything in a envelope, car payment, elec, phone, cable, car insurance, house taxes, etc. I have about 30 catagories. Twice a month I pay my bills and deposit the money in my checking. I let the once or twice a year catagories (car insurance , house insurance and property tax) build up in my checking until I need to pay that. I budget $100 a week fo pay 4 car insurances, 1 house insurance and 2 property taxes.

[JoyJoy]

I applaud all of you for having the patience and the determination to employ such a system. I would have envelopes all over the place and shortages everywhere. WTG all of you!

[Ima saver]

All my envelopes are in an old fashioned budget book with a big rubber band holding them together, so I never loose any of them. Also, I never borrow from an envelope except on a rare occasion. Then I put a big post it note, saying IOU and the amount, which gets paid back on the next paycheck. I budget for the highest amount, for example I put aside $40 a week for electricity, if the bill is less than $160, I put the rest into savings. (challenge money)

[Diolla]

I have mine in a coupon organizer and have never lost one either.

The trick to avoiding shortages is to put enough (but not too much) in each envelope. If you run out you are out.

My check is direct deposited so I find it easier to just leave the amount I need to pay bills in the checking acct. and only make envelopes for variable expenses.

Since starting this in January I have paid off over $8000 in debt and have never felt stressed about money. Before I always seemed to have too much month at the end of the money.

[sweeps]

I'm puzzled how an old-school envelope system could work in our increasingly digital world. Isn't it very cumbersome to get your paycheck direct deposited to your checking account, go to the bank and withdraw a bunch of cash and divide it into envelopes, receive a bill, deposit the cash back into your checking account, and then write a check to pay the bill?

I would also be concerned about having $1,000 or more in cash laying around the house. But maybe I'm missing something here?

[jmjj215]

Sweeps, to your point, I pay for everything w/ a credit card and keep virtual envelopes with Excel. Nothing beats it!

[Thrifty Ray]

Originally Posted by jmjj215

Sweeps, to your point, I pay for everything w/ a credit card and keep virtual envelopes with Excel. Nothing beats it!

Same here!

[Broken Arrow]

Me three!

[jmjj215]

Perhaps we should start a poll...

[Ima saver]

You have to remember that I am older. When I first got married I had no checking account. I cash the paycheck and take the money home and put it in the envelopes. Twice a month, I pay all the bills and take the money back to the bank. Looks like a lot of work, but it has always worked for me. A few years ago, I tried to keep all the money in the checking and just keep track of it on paper (I do not know how to use a computer and did not have one) I got so messed up, I just decided to go back to what worked for me for all these years.

[autoxer]

I was going to start a thread about budgeting. I've been trying to figure out a plan to simplify my finances and automate everything, so that I only have to 'worry' about having enough money for gas, food and entertainment for the week. I don't want to enter all of my transactions and track how much I have left in any category, so I figure if I have two checking accounts, then I can let one cover the monthly expenses (car payment, rent, cell phone, credit card) and the other will cover day to day expenses. I will direct deposit into both accounts, and transfer longer term savings (Roth, yearly car insurance payment, vacation, christmas funds) into a higher yeild savings account. Once each bill is automated, the monthly account won't require any work to pay bills. Then I will draw from the day to day account to buy gas, food and entertainment. Once that runs out, I won't spend until the next paycheck. I feel like I need to isolate my bill money, because of my spending habits. Any input on my plan?

[Diolla]

I think you plan would work, the second checking account would be like your 'envelopes'. The only problem I can see in lumping 'spending money' is not overspending on one category and then not having enough for a need. For example you go out, spend too much and then don't have enough for food or gasoline to get to work.

Unlike Ima I don't cash my check it is direct deposited. Except on payday when I get my cash I never have that much on me. Today I needed gas so I took some money from the 'gas' envelope and bought it. If I am shopping for other things I take the envelope with me, it fits in my wallet just fine. I know some men who just paperclip it together in their wallet so they don't have to carry the envelope.

I prefer the cash to writing down every little expense and keeping track of how much is in virtual envelopes. When the cash is gone I am out of money. I used to keep a budget like that and was constantly going 'just a little over budget'. A couple of weeks ago when I spent too much on groceries I was pretty tight the next week, but for the 2 week pay period I stayed on budget. It is harder for me to borrow from an envelope than it is to overspend with my debit card.

Good questions and comments. Everyone needs a system that works for them.

[sweeps]

Just a thought but could you use play money as a substitute for cash in the envelopes? That way you could still do the envelope system, but not have to handle all that cash.

[poundwise]

I keep all of my accounts with a budget sheet and Quicken and do virtually everything online.

I recently helped my parents set up a budget system for themselves. If I had tried to get them to do what I do, they would have been lost and frustrated. They have an envelope system for many things and a notebook with a sort of 'virtual' continuation of that system on paper for the items they handle from their checking account each month. Thus far this has served them very well.

I think an envelope system, to some degree, helps those who are not techincal or detail oriented, and those who are, frankly, spenders. It is a lot harder to spend cash than it is to run a debit card or write a check.

[Ima saver]

Well I am not at all techincally inclined. When I first started this envelope system, I had no checking account and no credit card at all. I still do not have a debit card, nor have I ever used an ATM. I just keep enough money in my checking account to pay the bills, nothing extra for spending. Our spending money is an allowance we get each week!! I have a misc. envelope if we ever run out of spending money for gas and food.

[kristinecfp]

Originally Posted by poundwise

I think an envelope system, to some degree, helps those who are not techincal or detail oriented, and those who are, frankly, spenders. It is a lot harder to spend cash than it is to run a debit card or write a check.

Two thoughts:

First, the envelope system can be beneficial to the technically savvy as well as those who are not technical. There's an online envelope system (www.mvelopes.com) for the technically savvy that I've heard great things about (no I'm not connected to this organization in any way), and of course, many people use Excel spreadsheets to run their own envelope system.

Second, it IS harder to spend cash than it is to use a debit/credit card. I sometimes recommend that clients who have a spending problem go back to the traditional envelope system (using cash and paper envelopes) to help them control areas of spending that are a problem.

Great discussion thread - thanks for starting it Diolla!
Kristine

[Fizgig]

Another option is to use cash/envelopes only for discretionary spending outside the home, rather than everything from your mortgage payment to your toenail polish. I have my "necessary" spending like bills and savings contributions, and that's all paid from home. I'm not going to accidentally overspend on my cable bill - it's discretionary spending that's the potential danger.

Outside spending like clothes, entertainment, etc is budgeted and I withdraw cash once a week for it. I don't care too much if I borrow from one category to splurge on another, because I figure the real goal is to keep total spending below a certain number. In the long run, it doesn't matter if I spend $10 more on clothes and $10 less in a restaurant, as long as it balances out at the end of the month.