The following guest post is from Julia at The Frugal Find:
This envelope system isn’t new. I’m not the genius who created it – and yes, that person WAS a genius – but I believe this system will transform your financial situation.
Envelope Budget 101
My #1 tip is to use cash only and always. I speak from the experience of having gotten into thousands of dollars in debt. Cash is absolutely the only way to go. I know at first it might sound crazy. You might think, “If I have cash, I will just blow it!” However, I think you will quickly see just the opposite happen. You will begin to ask yourself, “Do we really need this?” You will find yourself using coupons more often and shopping at the discount store you always avoided. When you are on a fixed budget, you will see that you actually DO have the time to clip coupons and hit a couple of different stores in search of a deal or sale. Amazing how this happens!
Define your categories. What can you possibly pay for cash with? One key here is to only include categories for things that you can’t pay online or through an invoice or bill. Anything that doesn’t come as a bill in the mail is probably a good candidate for cash.
Here is a list of our envelopes. Notice I do not have an envelope for gas. It’s not that we don’t have it budgeted, but it’s because I don’t want to leave the kids in the car while I go into the gas station to pay the attendant. We use our debit card for this expense. Note DEBIT, not CREDIT. You’ll need to figure out what best fits your families needs.
4. Gifts (Birthdays, Christmas, etc)
5. Date Night
6. Eating Out
7. Spending Money
8. Car Maintenance
9. Kid’s Date
10. Kid’s Allowance
11. Trip Money
Determine how much you spend in each of your categories per month, ie. groceries, toiletries, clothing, etc. Not what you spend while on a budget, but what you have spent on a regular basis. This make take some time, and you may have no idea because you haven’t kept any track at all. You may have to start the tracking process now for the next 30 days. Now hold on to your seat; you’re going to be shocked!
Figure out how much you think you will need in each category, but the key here is to be flexible because it will change. It will change more than once, twice, and possibly even three times. Life is always changing, and so will your budget. Another baby? Up goes the toiletry budget! Or maybe you just potty trained your 2-year-old. Well, that saves $30 a month!
Get the cash! We go every week on payday to withdraw our cash. It is easiest if you can keep it to an even $20 amount so you can go to the ATM machine at your bank, which saves you a trip inside the bank. This has got to be the best part! It’s like playing a game of monopoly. Divide your cash into your envelopes. Of course, you may need to go into the bank every once in a while to get $5’s, $10’s, et cetera depending on your envelope amounts.
Start saving money! When the envelope is empty, that’s it. Your money is gone and you CANNOT purchase anything in that category until the next envelope payday. But remember, the first couple of months you need to be flexible. Also, please remember to make your budget realistic. If you undercut yourself too much, you will give up. This is why my family has an eating out budget. The reality is that while we shouldn’t eat out, we do. We put $15 a week into our eating out budget. If we save it up, we can go out to a sit-down dinner; otherwise it gets us a pizza night once a week.
The envelope system is something that we live by, and it’s the only way we have been able to to live without credit cards for 2 years now. I’d be happy to go into even more details if you’d like. Just contact me!
Have you ever tried the envelope system of budgeting? What other methods have you found for tracking and controlling your spending?
Julia and her husband are climbing their way out of debt and hope to be debt free very soon! They have 4 children, 3 boys and 1 girl and are a homeschooling family trying to live simply yet abundantly. You can find Julia sharing all her frugal tips at The Frugal Find.