For a while my wife and I were having trouble budgeting our finances. The concept of budgeting was not the problem, nor was the actual layout of the budget. The issue that seemed to hinder us most was the follow through. Every month I would lay out the finances and allocate them to categories that were based on income percentages or necessesity. Regardless of how the budget came out on paper, reality never matched up.
As it turned out the debit card was hindering our budget from reaching it’s full potential. When using a debit card it can sometimes get out of control. Swiping the card multiple times a day for purchases without much thought and with a somewhat haphazard method of accounting for it all. The charges rack up and it is often to overspend on a category such as groceries.
Recently we have gone back to my grandparents method of budgeting. Perhaps our grandparents generation did not invent it but they used it and in some cases some still use it. Dave Ramsey promotes it heavily throughout his book “Total Money Makeover.” Yes, it is the envelope system! I have to say at first I was extremely skeptical about using envelopes to help me budget. After using it for a while now I am starting to swear by it! Now I can actually tell you exactly how much I spend in each category, and when I say actually I’m talking the actual dollar amount not what we have budgeted! A little OCD? Maybe, but it works well!
The system is pretty easy. Every month you draft up your budget, breaking everything into categories. I get a little OCD with my categories but I ensure every little thing is accounted for so it will not throw the entire system off during the course of the month. Certain categories will be cash based categories. As in example my cash based categories are:
Recreation
Transportation
Food
Housing
Clothing
Charity
Blow Money
Personal Items
Every payday I go to the bank on the way home and withdraw the amounts for each envelope. Since I get paid twice a month I withdraw half of my monthly allocation. Now the key to the system is to use the cash in the envelopes and not use your debit card. Once an envelope is out of money you have to make a decision. You can steal money from another category or you go without. I would recommend you allocate enough in funds for transportation and food before filling out the others. In theory this will greatly reduce your spending because you are treating your debit card like a credit card and leaving it at home… You are leaving your credit cards at home when you go out right???
The system has worked well for us, but with everything it needs adjustments and fine tuning as you go. If you try the envelope system, or have been using it please share your thoughts below.
If you would like to make a comment, please fill out the form below.
