Experiment: The Envelope System
By · Oct 03Confession time: I have NEVER used a budget. I know! I probably should not be admitting this since I claim to be so frugal. I have never really felt like we needed a budget because, frankly, I am really good at not spending money. I was born cheap. I am a saver by nature, and I am the one who makes the majority of our purchases. However, we have decided that now is the time for us to have our first budget. Here are our reasons for wanting a budget:
- 1. We have some new financial goals and we want to work really hard to save our money so that can accomplish those goals.
- 2. We are self employed folks, and these are shaky economic times to say the least. We have no idea what the next few years will hold for our little family business.
- 3. Because I am so cheap, and my husband is not, there are a lot of discrepancies in our individual expectations of how money should be spent. After nearly ten years of marriage, it was time for us to finally come together and put on paper what we think should be spent.
So the system I (ahem, we) decided on was the cash envelope system. The great advantage of the cash envelope system is that it is really clear what money you have and when it is gone.
We decided on a very simple system. We will use #10 envelopes that will all be kept in one large Manila envelope. We are going to keep the majority of the money at home, and just grab what we need when we are out and about, so that we are not walking around with large amounts of cash all of the time. We are only going to have four categories for our envelopes:
- -Grocery
- -Household (This is for all money spent at stores such as Target and Walgreens, and it does include some grocery items. I didn’t want to have to separate every transaction, so I left a little extra room in the household budget to include some grocery items.)
- -Entertainment (this will be for all family entertainment, including eating out)
- -My hubbies fund (this will be money for his lunches and snacks)
The amounts that we decided on are going to be monthly amounts, so we will be working on a monthly basis. To decide on the amounts, for the last 3 months I have made all purchases using my debit card, so that I could track our expenses and see how much we have been spending. Then I took those amounts and averaged them out and my husband and I came up with a number that we could both live with.
I am really optimistic that this is going to work out fabulously for us. I think it is really going to help our family finances. It does mean that I am going to have to be selective of what “deals” I decide to buy. Even if things are at rock bottom prices, if I don’t have the money in it for my budget, then I will be out of luck.
Wish us luck! I will keep you all posted on how it goes.
Have any of you used the cash envelope system and has it worked for you?
17 Comments
October 3rd, 2008 at 5:07 pm
hi Nicole!! I have to admit we don’t have a set budget, too! I’ve always been intimidated how people do it. They break it down to clothes, school stuff, etc. It always seemed too complicated.
But I LOVE how you did it–by stores! Now that is more manageable and it makes sense, esp if you shop at the same places all the time.
THANK YOU for the inspiration!
October 3rd, 2008 at 6:02 pm
Nicole – I have never used the envelope system; I don’t know if I have the discipline to have cash lying around…
My brother has used this system and it worked well for him. He was a waiter and he would divide up his nightly tips into the appropriate envelopes and he paid his bills that way. He liked it, he told me, because he felt prepared and in control. It was at a time in his life before a wife and kids, though, so I am curious to see out it would hold up to a two-person family oriented scenario.
October 3rd, 2008 at 6:11 pm
Good luck! We’ve done the envelope system and found that I was more disciplined with the money when we used it. I’ve resisted going to it because some purchases with cash can be a pain (gas – it’s easier to pay at the pump when you have a car full of kids) but overall I think it’s better for your wallet.
Let us know how your first month goes!!
October 3rd, 2008 at 6:21 pm
Ooo, we don’t have one either. I’ve been wanting to make one, but seems like it’d just be depressing. I really should though.
October 3rd, 2008 at 7:24 pm
We’ve been doing it for a few months too- grocery, “fun” money, holiday and auto (oil, changes, repairs, etc) envelopes. I still use debit to pay for gas simply because I dont want to get the whole crew out of the car. It has worked very well and I have been way more aware of the little things I spend on…. good luck!
October 3rd, 2008 at 7:37 pm
I really want to try this idea.
October 3rd, 2008 at 10:21 pm
Dave Ramsey does the cash envelopes. I think it is great. The only hard part is that you have to keep receipts so you can track where every dollar goes. I like to do it on a weekly basis so that when the money is out I have a new week starting. I think you will like it, I love budgets!!
October 4th, 2008 at 12:31 am
Good luck with your new budget! I really like the envelope system. Just be careful not to raid one envelope for another at the end of the month – that is certainly my problem.
October 4th, 2008 at 4:47 am
I love the envelope system!!! We have done it for years and it is the best. We do it by week though. At the beginning of the month I take the total amount needed for expenses, divide it into 4 envelopes labeled for each week. I love knowing that at the end of each week I get to start fresh with a new envelope. I also like the visual benefit of the envelope system. It is very easy for me to see each week how much money is left and how much I have spent. I think when I used my debit/credit cards I as not on top of my spending.
Good luck!!
October 4th, 2008 at 10:25 pm
I don’t know if I have ever commented on your blog, but I “blog stalk” it all the time and love it! Great job, and thank you.
Besides that, I think your budget sounds great. I’m proud of you. Budgets can be hard. But yes- my husband and I have used the envelope system well, and have found that it CAN be really successful. The best was when we were expecting our first child and had lots of gear, etc, we needed to buy. We allotted a certain amount, stuck it all in an envelope, and once it was gone… we were done. We found that saving for specific instances like this were great ways to use our envelopes.
I wish you luck in your budgeting endeavors, and again- thanks for your fantastic, frugalistic tips!
October 5th, 2008 at 4:10 am
My husband and I do a form of the envelope system. We have on bank account that pays for our “regular” bills. My biggest problem with the envelope is remembering to bring it when we went shopping, so we opened a second account for fun money (entertainment, clothing, gifts, etc). When the money is gone, it’s gone
Now I am just left wondering how I should handle our groceries and household items…
Good luck!
October 5th, 2008 at 4:21 am
Your story sounds a lot like yours. We have been married almost nine years and never had a budget till 2 months ago. My husband did not like the idea of the cash system because he likes our money gaining interest till we use it. He talked to some friends at work and we found this really software that you can use. It is called you need a budget @ http://www.youneedabudget.com/. If you are finding that the envelope system does not work for your family try this system. We have found that it works great. Good luck with your budget I have found that is something great to have.
October 5th, 2008 at 11:04 pm
We use the envelope system, and I have to tell you that I get such a sense of comfort when I put the cash into an envelope for something like my daughter’s Mother’s Day Out or for a doctor’s appointment or a gift for a friend. It’s like, wow, that’s taken care of….the money is there and I don’t have to worry about it.
October 6th, 2008 at 12:16 am
We aren’t really using the envelope system, but have recently started withdrawing a lump sum of cash each payday. Admittedly, this is mostly for my husband’s benefit, as he swipes his bank card way too often! LOL. This cash is for his car’s gas, lunch/dinner money at work, and entertainment. So far, so good!
October 6th, 2008 at 4:05 pm
That is by far my favorite system. I have no self control and have a hard time tracking purchases made on credit/debit cards. Now I take the cash out of my account on payday, divide it into envelopes, and then into weeks. This keeps me from spending two weeks of grocery money on the first week.
December 5th, 2008 at 7:30 pm
This sounds like what my mom told me that my dad used to do before us kids were born. He started out with envelopes labeled with whatever fund they were for — food, gas, etc. but at the end of the month my mom would find little sticky notes he had written to himself: “Owe $10 to gas fund,” or “Owe $5 to food fund from auto fund.” If you can do it without borrowing from the other envelopes it should work splendidly though — I would just worry about someone breaking into my house and stealing all my money, I hope you have the envelopes locked up somewhere! Also, I like to imagine my money sitting in the bank collecting interest rather than in my house, but maybe you still have money in the bank other than what you’re keeping out for your budget. Good luck in your endeavors, you’re an inspiration to a lot of people!
October 6th, 2009 at 2:33 pm
Hey Nicole.
Kent made a website to keep track of what we were spending. You have to input all of your purchases, but it will add it all up and show you if you’ve overspent. It’s free so anyone who would like to use it can.
http://budgetsmarts.com
Thanks for doing such an awesome job Nicole.