So let's get into it.
The envelope system is strongly promoted by Dave Ramsey who is a financial guru of sorts and also runs the Financial Peace University; a great place to start if you're serious about getting on a budget. As with all advice, take everything with a grain of salt. This is what works for us; but take the time to research and try some different methods to find what works best for you. Jeremy and I started using the envelope system shortly after we were married about three years ago and after a few months of trial and error, we found a system we were happy with and have been doing it ever since.
What is it
The envelope system is a budgeting tool where you calculate how much you spend each month and divide it into categorized envelopes. For example, you decide how much you want to spend on groceries, take out that amount of cash and stick it in an envelope titled 'groceries'. Then, for that month, you only use the cash that is in the enveope. Once the money is gone, it's gone. You have to wait till the next month to spend any more.
How we use it
-We have figured out how much we spend in a month and divide it into a different envelope for the following categories: entertainment, groceries, household, Jeremy's spending and my spending. Choose which areas you want to include.
-We decided that we wanted to put each of our personal spending in there for several reasons. I always hated the thought of having to discuss personal purchases with each other. If we split up our spending, there's no discussion necessary. If he wants to buy something expensive, and he has the money saved up in his personal spending, he can go buy it. No questions asked. And vice versa. We don't care what the other one spends because it doesn't come out of our mutual spending account and it doesn't hurt our savings for that month.
Why we love it
-When we spend money with our credit or debit card, we would lose track of what we were spending and found that we bought more because we didn't have a visible limit like we would if we only brought cash with us.
-We have found we have saved more money because it is a constant and visual reminder of how much money we have to spend that month
-Budgets don't have to be constricting guys. If it's done well, and done to fit your lifestyle, it can be rewarding. Like when we cook at home more during a month and realize at the end that we still have a ton in entertainment money. Whoop! Date night!
Trouble Shooting
-So let's say you're on your way home from work and want to stop to get some groceries. But oh no! your envelopes are at home. Don't worry about it. When this happens we just use our debit card at the grocery store. We have another envelope titled 'Deposit'. This is used when we receive cash for any reason OR if we use our debit card. We pull the money out of the envelope we spent from and put it into deposit to take to the bank later on.
-You like to keep cash in your wallet for emergencies or unforeseen spending. This is also perfectly ok! We usually keep around $20 in our wallets at all times. This does not come out of any of the envelopes, just our mutual spending account. If we use that money from one of the categories, when we get home, we simply pull money out of that envelope and use it to reimburse the money kept in our wallets.
-Now this one, not everyone will agree with but it works for us. If we have a really big personal purchase (for example, my husband bought his own dirt bike a few months back) and we don't have the money in our personal accounts at the moment, we allow ourselves to take 'loans' of sorts. So for the next few months following his purchase, his spending money was cut until his bike was paid off.
I am by no means a budget expert. This is what we use and what works for us. So tell me, what is your best kept secret for budgeting? Have you tried the envelope system?
