As a followup to our Dave Ramsey "testimony," my niece was curious about our use of the envelope system. I thought it might be helpful to some of you to get a peek at a real envelope system in use. We've been using the system for nearly 13 years now, so we've really had time to fine tune it to our family's needs.
The first thing I want to say is that I wholeheartedly buy into the idea of working on a cash only system. There is an emotional power about cash that does not exist when you write a check or use plastic. I am very protective of my cash, and I get more protective as I see it dwindling. Maybe I am more visual than some, but research backs up what I'm saying. People spend less when they spend cash.
That said, I'm not out to pick a fight. This is what works for us, and has worked for us for a long time. You may be able to dispute my philosophy, but not it's effectiveness for our family. Besides, cash has some side benefits. If your community or family is faced with an unexpected emergency, you won't have to find a working ATM (remember Katrina?)
I think every family needs a few basic envelopes:
- groceries
- gas
- entertainment
- Misc. (can cover items that don't fit groceries but might be purchased at a big box store like trash bags, light bulbs, etc...)
- Gifts
Beyond that, I think the envelope system should be customized to the family. We decide to create an envelope whenever we think of an area that we want to be sure is covered. In other words, if you want to be sure you've got money for it when the time comes, add it to the budget and make an envelope for it.
I remember a good friend saying one time, "I hate budgeting money for shoes, but I love knowing that we can afford shoes when we have to have them." That about sums it up. How detailed your envelopes need to be depends on your family's cash flow and spending personality. If you are easily tempted to buy a cute pair of shoes when you are having trouble paying for diapers, you need more envelopes and a very detailed budget. You can still have cute shoes, you'll just have to wait.
Here are some of the envelopes we have in addition to the basics listed above:
- Homeschooling expenses
- CSA and bulk wheat
- Christmas (in addition to our gift envelope)
- Haircuts
Your family may need different envelopes:
- Diapers and Formula
- Medication
- Medical Deductibles (If you don't have an FSA)
- Clothing or uniforms for work or school
- How about you? Be sure to leave a comment if you have any other envelopes
We keep some of the envelope money in separate compartments of my wallet, some in actual envelopes, and some in savings accounts. It takes time to get used to spending cash only. Now, I hate the rare occassion when we are traveling or otherwise out of our routine and not using our envelopes.In fact, when we are on a planned trip, I put together a budget and take cash. I always set a goal to come home with cash in my wallet. The only time we don't plan ahead like this is in the case of absolutely unexpected emergencies.
The very best advice I can give you about the envelope system is that practice makes perfect. Of course you'll worry about running short at the grocery store (see my post here for help) or you'll feel awkward pulling out a tattered envelope at the store. But in the end, the feeling of freedom will overcome the awkwardness and you won't want to live any other way. Besides, imagine how you will feel when you hear your kids tell others at a young age, "We don't do credit." It's definitely worth the effort.
If you have questions about how we use envelopes, be sure to let me know. You can email or comment below.