Envelope system

[annmarie93]

Ok, so I've read Dave Ramsey's Financial Peace and want to start by using the envelope system and also tracking all money that dh and I spend.

For those of you who use the envelope system, how many envelopes do you use? What are they for? Do you divide them and give some to your spouse and keep some for you?

Any tips? Did you ever screw up and how did you fix it?

When we get paid at the end of the month, I'll start the system. I just need to figure up how much cash to get from my check and how much to deposit.

Also, since we get paid twice a month, I also need to figure up what bills to pay and when.

[maat55]

Originally Posted by annmarie93

Ok, so I've read Dave Ramsey's Financial Peace and want to start by using the envelope system and also tracking all money that dh and I spend.

For those of you who use the envelope system, how many envelopes do you use? What are they for? Do you divide them and give some to your spouse and keep some for you?

Any tips? Did you ever screw up and how did you fix it?

When we get paid at the end of the month, I'll start the system. I just need to figure up how much cash to get from my check and how much to deposit.

Also, since we get paid twice a month, I also need to figure up what bills to pay and when.

You use the envelopes for:

Food (Includes eating out)
Gas (Optional if you use debit card)
Clothing
Blow money (Movies, shoping, golf etc.)
Auto repairs
Children activities
Any catagory you can think of in your world.
Insurances depending on how you pay them.
Make sure you allow for any non monthly expenses.

House payments, electric, gas, water etc. are paid by check or internet.

To make things less confusing, you can build a small working capital into your account of say half a month to a months expenses and call it 0. This will allow you to pay any bill as it comes, not considering when deposits are made.

[ActYourWage]

Originally Posted by annmarie93

Ok, so I've read Dave Ramsey's Financial Peace and want to start by using the envelope system and also tracking all money that dh and I spend.

For those of you who use the envelope system, how many envelopes do you use? What are they for? Do you divide them and give some to your spouse and keep some for you?

Any tips? Did you ever screw up and how did you fix it?

When we get paid at the end of the month, I'll start the system. I just need to figure up how much cash to get from my check and how much to deposit.

Also, since we get paid twice a month, I also need to figure up what bills to pay and when.

My wife and I use the envelope system. The thing I find is keeping things as simple as possible when dealing with money.

We have 3 envelopes for:
Gas (both of us have an envelope for this one, I sometimes use the debt card for this category)
Food (wife takes care of this one)
Misc ('fun' money, clothing, bday gifts, etc.) (both of us have an envelope for this one)

We use our bank to pay bills, move money to savings, etc. The envelope system works great if you can divide the money up at the beginning of the month. It took us about 3 months to get use to using this method, but it works.

[sounderella]

I use Mvelopes. It's just virtual envelopes. I'm still in my free trial and I really like it so far.

[annmarie93]

Originally Posted by sounderella

I use Mvelopes. It's just virtual envelopes. I'm still in my free trial and I really like it so far.

I don't get it. Isn't the purpose of the envelope system to have cash on hand?

How does Mvelopes work?

[sounderella]

It keeps up with your bank account so it shows how much you've credited your account everytime you're paid. So you fund your envelopes with that money. You can't fund more than you have. After you've funded your envelopes, it shows you how much money you have left over. Then for every transaction that shows up, you have to drag it to the corresponding folder and it deducts from what you already allocated.

It's pretty much the same as the physical envelope system. You put money in an envelope for a certain bill and you take it out as when you need it.

[lehresman]

I'm a HUGE fan of the envelope system, so I'm glad to hear you're getting started with it. Let me give you some tips.

First, I have a ton of envelopes (30, to be exact). You certainly don't need that many. I like to micro-manage where my money goes, so I'm probably a bit abnormal in that sense. Here are some of my envelopes:

Regular monthly bills:
* Mortgage
* Electricity
* Trash
* Server (to pay for a server that I own and maintain)
* Phone (dw and my cell phones)
* Internet
* Tithe
* Charity

Irregular monthly expenses
* Grocery
* Entertainment (eating out, going to movies, etc)
* Credit Repayment
* Cash (dw and my bi-weekly allowance of spending money)
* Personal Care
* Household Items
* Giving (gifts, buying lunch for people, etc)

Longer term savings
* Clothing
* Home Improvement
* Medical
* Propane (one-time cost each year to refill our tank)
* Travel (vacations, weekend trips, etc)
* Gadgets & Stuff (I know my weaknesses so I budget for it )

Now for some tips.. These are from my blog, but alas I cannot post a link because I'm pretty new to this forum. I've also created some online budget management software that I find very useful (I created it for my own budget). If you're interested in that, contact me and I can send you a link.

Tip #1: Be realistic, not optimistic

When first creating a budget, it is important to be realistic, not optimistic. Don't expect to change your spending habits right away. The first step is to track where you are spending so you know what areas you can cut back. So for the first few months, spend your paycheck like you normally would, but enter your purchases into your NeoBudget and into various envelopes. After a few months, you will get a good idea of how much per month you spend on groceries, or on gas, or on eating out. Then you can start working on your spending habits.

A fatal mistake is to sit down and say, "Ok, I'm only going to spend $X on groceries" when really you have no idea how much you normally spend. Improving your spending habits will come easiest with gradual change. For instance, if you notice you spend $150 per month on groceries, maybe next month you should make your budget $135 and try to stick to that for a few months. Then make it $120 for a few months. Over time, gradual changes are easier to work into your daily routine than broad sweeping change.

Tip #2: Pad by one or two paychecks

Once you have set up all your envelopes and created a plan for what happens to your paycheck, it's a good idea to pad your envelopes by one or two paychecks, especially the envelopes that are used for paying bills. For example, if you have an envelope for your electric bill and you put $50 per paycheck into that envelope, it's good to stick $50 or $100 in there to start with. This enables you to pay your electric bill at any point during the month because you know you will have enough money. You can pay your electric bill on the 1st, even if you haven't been paid yet. It also adds some cushion in your checking account, which is always a good thing.

This can be difficult to do on a tight budget. I did it by saving any extra cash for a couple months, and sticking it in those envelopes. I only had to do this once (because the padding always stays in those envelopes), and now I am enjoying the freedom that comes from not living paycheck to paycheck. I can pay the bills at any time, I don't have to worry about whether my paychecks have cleared yet or not.

Tip #3: Save before you spend (i.e. how to not use credit)

The envelope method of budgeting is set up to encourage you to save money before spending. Use this to your advantage! The way envelope budgeting works, every paycheck you put a certain amount of money into each envelope. So if you want a new TV, create a "TV Savings" envelope and stick $10 or $20 in there every paycheck. In a few months you'll have enough to pay cash for it, and it won't really feel like it's hurting your budget that much. The best part is that you won't have to use a credit card. You'll be earning interest on that money instead of paying interest.



I hope this helps! Best of luck to you!
Luke

[tripods68]

I'm not a huge envelope fan. This kind of a mess having so many envelopes with cash and the accounting time involved is crazy. I have much simply approach; I used automatic bill payment to pay my car, electricity, phone bills, cable/internet, etc. We carry only one envelope (with budget $300) use for all kinds, lunch money, prescription drugs, trips, entertainment. We don't spend anymore that what we have on this envelope. This way I avoid using my debit cards for entire month to spend on little things, except gas money. It works very well for us.

[lehresman]

Originally Posted by tripods68

I'm not a huge envelope fan. This kind of a mess having so many envelopes with cash and the accounting time involved is crazy. I have much simply approach; I used automatic bill payment to pay my car, electricity, phone bills, cable/internet, etc. We carry only one envelope (with budget $300) use for all kinds, lunch money, prescription drugs, trips, entertainment. We don't spend anymore that what we have on this envelope. This way I avoid using my debit cards for entire month to spend on little things, except gas money. It works very well for us.

I don't actually use envelopes and cash, I just keep my money in my checking account and use the principle behind the envelope method to manage it with virtual envelopes in an online program I wrote. It makes it much simpler so I can use my debit card instead of having to carry around cash.

[ActYourWage]

Originally Posted by tripods68

I'm not a huge envelope fan. This kind of a mess having so many envelopes with cash and the accounting time involved is crazy. I have much simply approach; I used automatic bill payment to pay my car, electricity, phone bills, cable/internet, etc. We carry only one envelope (with budget $300) use for all kinds, lunch money, prescription drugs, trips, entertainment. We don't spend anymore that what we have on this envelope. This way I avoid using my debit cards for entire month to spend on little things, except gas money. It works very well for us.

Our system is similar to yours, but we use 3 envelopes instead of 1. The easier to control the more likely one will continue to use that method.

[Ima saver]

I have used the envelope system and cash for 43 years. I never borrow from the envelopes. I have an envelope for each bill and I put 1/4 of the amount due in each envelope weekly. When the bill is due, I pay it and deposit the cash in my checking account. I could not live any other way!!

[lehresman]

Originally Posted by Ima saver

I have used the envelope system and cash for 43 years. I never borrow from the envelopes. I have an envelope for each bill and I put 1/4 of the amount due in each envelope weekly. When the bill is due, I pay it and deposit the cash in my checking account. I could not live any other way!!

I couldn't stand handling cash like that, but I guess that's not the point. The point is to develop a system that works for you! That's the key. There are many variations on the same theme here, do what works and stick with it.

[KatieNK]

Originally Posted by Ima saver

I have used the envelope system and cash for 43 years. I never borrow from the envelopes. I have an envelope for each bill and I put 1/4 of the amount due in each envelope weekly. When the bill is due, I pay it and deposit the cash in my checking account. I could not live any other way!!

That seems like such a hassle! But is very old school. As long as it works for you, thats all that matters!

[annmarie93]

Thank you all for the tips.

I can't wait to get started!