Do you use an envelope system for budgeting?

Question

How does it work for you? When do I take all that money out of my checking?
I'm afraid I'll just end up spending it on stupid stuff if I take all that money out.

Answer 1

We have about a dozen envelopes that I add to every time my husband gets paid. We have one for eating out, one for entertainment, one for clothing, one for household (stamps, haircuts, anything that doesn't seem to fit somewhere else), one for gifts/Christmas, one for school supplies (we homeschool, so I'm always buying new materials), one for auto repairs, one for home repairs/improvements. Since we have a spending plan in place, we use the debit card for groceries and gas.

We had never even HEARD of the envelope system until we took the Financial Peace class by Dave Ramsey. We started with just one envelope (I think it was eating out). It worked so well, we started using the others. My husband and I also have blow money (cash we get each paycheck) to use on whatever we decide, no questions asked.

Every paycheck, I write out a list of how much is budgeted for each envelope (and the blow funds) and run by the bank to get the cash.

If you do end up blowing your envelope money, it's YOUR money. At least you're not using a credit card or overdrawing your checking account.

It takes some getting used to, but it's kind of nice to tell the cashier you'll be paying with cash (some will look at you funny).

And to Dubberino - interest rates are near all-time low levels. Having $500 or $600 "lying around" (ours' is in a fire-proof safe) wouldn't be making you much in interest anyway. Additionally, most of the money in the envelopes is cycled through every paycheck - very little carries over from one check to the next - so it still wouldn't be earning much interest in a bank.

Answer 2

My wife and I are also using the "envelope system" according to Dave Ramsey. It does take about 2-3 months to get used to, but once you do, it's motivating to know that you are not getting into any more debt (assuming you have some).

To your point of spending the money on stupid stuff, it is actually easier to stop spending the money as you see it dwindling out of your hands and envelope. It's easier to charge because you don't feel the "pain" until you make that monthly payment to the credit card company after you've seen your monthly bill. I'd suggest listening to Dave Ramsey's radio program. You'll be glad you are taking steps to improve your financial situation. The website is DaveRamsey.com

Answer 3

I like to use a "virtual envelope" system. I have a spreadsheet that has my total budget listed, and then it has little sub accounts for each category of expenses I am budgeting for. When I tap my budget out in a specific area, I can see that very easily, and I can also track my progress as the month goes along.

It is not wise to keep all of your budget on hand in cash each month...unless you are working with a fiarly small budget.

Answer 4

I don't use envelopes for everything, but I do use it for a few things. Mainly something I'm saving up for that I will need to spend in chunks. For example, we put money into an envelope each month for holiday shopping so that we have the cash when it's time to shop.

We are also doing it to save up to fix up my step daughters car for her 16th birthday.

For everything else I just budget then track expenses in a spreadsheet.

Answer 5

No. That is a horrible idea. When it is in the bank it is insured against theft and, depending if you use a savings or money market, it earns interest.

In your house in an envelope it loses value (inflation eats away at it) and it can be stolen leaving you SOL. Your homeowners or renters coverage will probably only cover $500 of cash or less, subject to your deductible so don't think that is your protection.

Use a bank and a spreadsheet program on your computer for budgeting. If you stick to the figures in the spreadsheet you don't need to know your balance and will be fine. It works for me.

Good Luck