The Envelope System

So the hub and I are trying really, really hard to get back on this cash envelope system of Dave Ramsey's. He's a local radio personality here with his own show about getting debt free. He's been on Oprah, so maybe you've heard of him. He travels around the country doing seminars and has also spoken at our church a few times. I could blog on and on about his methods (his teachings are biblically based and he is very blunt - he's great), but I really want to just get this message out so I can hold myself accountable!

One of Dave's tools for cutting back spending (which we definitely need to do) and sticking to a budget (which we have a horrible time doing) is using a cash only system. Ditch the debit card and use only cash. This is a hard transition for us because we are plastic lovin' fools... I rarely EVER have cash on me and when I do, I spend it so fast because, well, it's already *out* of my account, so why not? Generally, what we've always done is have two checking accounts - both joint, but one is for bills and the other is for everything else (groceries, gas, and other discretionary spending). Enough of our paychecks goes directly into our bill account to cover the bills, some (very little at this point actually) goes into our general savings, and then the remainder goes into our spending account. So while we don't really do a detailed budget, we have a cap on our spending money for each pay period. That's great and all, but the hub and I are both spenders. And you probably already figured out that I am by all my shopping posts - haha! So sticking to a budget is not easy for us. We pretty much end up pulling money from our bill account each month to cover overspending. And after a while, that'll catch up with you and it's not pretty.

We first heard about Dave Ramsey and his Total Money Makeover program through our church. And one particular couple we know follows the plan religiously and they are just the biggest Dave Ramsey fans - it's kinda funny. They have been using this cash system of his for a long time and after discussing our issues with spending, they said we just had to try it. I was very skeptical. I mean, cash only? But here's the thing... when you're using only cash, you pay A LOT more attention to what you're spending. Seriously how many times have you swiped your debit card at the grocery or Target or wherever and not realize how much you just spent? I rarely pay attention. But if I'm counting out dollar bills, you better believe I'm paying attention. And I'm also paying attention to how much cash I have left. And that's why it works.

We started this envelope system a while back and let me tell you, it was the first time in I don't know how long that we did not exceed our spending allowance for the period. We kept it up for probably 3 months and sometimes we even had cash leftover! It was seriously amazing how such a simple concept can change your entire outlook on spending. The thing is, spending cash just "hurts" a little more than swiping a card. Here's Dave's envelope system spelled out for you (he does a better job explaining it than I could)...

Dave Ramsey's Envelope System

On a budget? Still over-spending? Trying to figure out the best way to organize your finances and spend wisely?

You Need a Simple System.

I found out that Grandma's way to handle money still works. People used to always use cash envelopes to control their monthly spending, but very few do in today's card swiping culture. The envelope system is a key component of the Total Money Makeover Plan because it works.

Here are a few simple rules for starting a cash envelope system.

Budget each paycheck. Budget is a dirty word to most people, but you must budget down to the last dime if you're going to successfully implement the envelope system.

Divide and conquer. Of course, there will be budget items that you cannot include in your envelope system, like bills paid by check or automatic withdraw. However, you can create categories like food, gas, clothing and entertainment.

Fill 'er Up. After you've categorized your cash expenses, fill each envelope with the money allotted for it in your budget. For example, if you allow $100 for clothing, put $100 in cash in your clothing envelope for the month.

When it's gone, it's gone. Once you've spent all the money in a given envelope, you're done spending for that category. If you go on a shopping spree and spend the $100 in your clothing envelope, you can't spend any more on clothes until you budget for that category again. That means no visits to the ATM to withdraw more money!

Don't be tempted. While debit cards can't get you directly into debt, if used carelessly, they can cause you to over-spend. There's something psychological about spending cash that hurts more than swiping a piece of plastic. If spending cash whenever possible can become a habit, you'll be less likely to over-spend or buy on impulse.

Give it time. It will take a few months to perfect your envelope system. Don’t give up after a month or two if it's not clicking. You'll get the hang of it and see how beneficial the envelope system is as you dump debt, build wealth, and achieve financial peace! See....simple!

Certainly, some bills may come in at different times of the month, so you'll need to adjust your written game plan to take it one step further. You need to plan the budget based upon your pay periods. Say that you get paid twice a month. If you can write down which bills you plan on paying from each paycheck, you will not be left with a surprise bill. Spend each month's income and each individual paycheck on paper BEFORE it comes in.

Have Some Fun... I also have no problem with you adding an envelope with money just to "blow." As long as you and your spouse have agreed on it, you are fine. There should be no lying. Agree on your budget, agree on your blow money, and be open. Blow money can be anything you want it to be. There are no rules on that envelope, unlike money in the "entertainment" envelope that is used specifically for entertainment.

Now we still pay bills out of our bill-only checking account - we pay everything via online banking. We just use the cash system for everyday spending. The only exception we make is for gas - I refuse to give up my pay-at-the-pump!!! So we leave enough funds in our account to cover gas, but that is the only time we allow ourselves to swipe the debit card. OK that and the occassional online purchase! That kind of stuff we just have to plan around and adjust our cash balances in the appropriate envelopes. Like he said, you do the envelopes however they work for you, but here are the categories we use...

• Groceries


• Dining Out/Entertainment


• The hub - Lunch money


• The hub - Blow money


• Buford Betty - Blow money


• Dry Cleaning


• Maid

So yeah we slacked off the system several months ago (and mysteriously started over-spending again!), but yesterday we officially got back on. On pay day, I go to the ATM and pull out all the cash for that pay period and then fill our envelopes. (My envelopes are very cute by the way.) It feels great to be back on it, even though it's only been 24 hours. I just feel.... cleansed. hahhaha... So if you struggle with over-spending like we do, I highly highly highly recommend giving this system a try. It's very simple and it WORKS. You'll be amazed - I promise. Though if someone sees your envelope labeled "blow money" with a wad of cash in it, you might need to explain yourself.