Wednesday, September 8, 2010

"And the Envelope, Please..."

I spent a good part of my Labor Day weekend at my hometown's annual celebration, shopping through the craft and food booths. I also spent part of my weekend with some of my gal pals at outdoor piano concert.  {For the record, my weekend wasn't all fun. I spent all of Labor Day cleaning and organizing my house.} At both events, I had more than a few people comment on my wallet as I paid with cash.  In fact, more often than not, whenever I pay with cash, someone usually comments on my wallet. I wish I could take credit for the idea and system, but I cannot.

All the credit goes to Dave Ramsey. Granted, the general idea of the envelope system isn't his idea, but he really brought it to my attention. Plus, I got my wallet system from his online store. More on that later.

{Sidenote: have you read The Total Money Makeover yet?  If I could assign reading, I would make this book required reading. Go to a library or a bookstore and get it. If you live by me, you can borrow my copy. Just read it!}

One goal that I'm constantly working on is using cash for the majority of my spending. I use my checkbook for bills. I use my debit card for buying gas and for online purchases/bill paying. Everything else I try to buy with cash.  My success with this goal wavers, I'll admit. It's so much easier to use the debit card instead of budgeting out certain amounts of cash and counting it all out at every store.

So why do it?  I think the main reason is that it makes you think before you spend. Using plastic, especially if it's a credit card, is so effortless. Plus, it feels a little abstract. You know you're spending money when you use a card, but it's more removed than counting out the actual money and handing it to the clerk.  As Dave Ramsey says, using cash is a little more painful. It's more concrete. You actually see your money leave your hands. And when it's gone, it's gone. I think this goes a long way in keeping your spending in check. I know that when I have a certain allotment of cash, I'm more careful how I spend it.

The envelope system is really quite simple. Budget every paycheck, spending, as Dave Ramsey says, every dollar on paper before you actually spend it. Next, you allot a certain amount of cash to various expenditures like food, clothing, entertainment, etc.  Designate a specific envelope to each thing (as in, an envelope for food, an envelope for clothes, etc.) and keep the cash in there. This is all you can spend and once the cash is gone, it's gone. Don't cheat! (Full disclosure:  I sometimes struggle with this - there have been occasions where I'll spend too much on groceries and make up the difference with my debit card. Totally defeats the purpose of the envelope system.). For more details on the system, straight from Dave Ramsey, check this post on his site.

My envelope system is made up of five envelopes: food, clothing, gifts, allowances (my husband and I give ourselves monthly "allowances" that we can blow on anything we want), and entertainment/misc (for things like dates, Family Home Evening, movie nights, outings with the boy, etc.).  At first, I tried using regular old envelopes, but they were kind of cumbersome and always falling out of my pocketbook or getting lost in the depths of my bag. Then I came across the system on Dave Ramsey's online store (I know, I know - how many times can I mention him in this post? What can I say? He's my money guru.).  He sells a pocketbook insert of spiral-bound envelopes on his site for only five bucks. It's awesome. It keeps all my cash organized so well, which really helps me with my paying-with-cash goals. I've had mine for probably close to a year - it's looking kind of hammered, but it totally does the job. And like I said, I always get comments from clerks at stores or people with me who see me use it, usually something like "That's such a good idea!" or "Where did you get that?" or "I should do that!"

I love using this system. Yes, it can be a little cumbersome sometimes to have to check how much money you have left in each envelope or making clerks a little annoyed that you take longer to count out the money than if you just swiped a card. It's actually kind of funny to see how some salespeople at stores react to cash, as if it's some kind of foreign currency. Having worked retail years ago, I can attest to the fact that paying with cash is no longer the norm; it's the exception. But I like being the exception. It keeps me on budget and saves me money. And a little extra work at the cash register and some self-control is worth the peace I get from living within my means.


Jess, Andrew and Family said...

I love this! The reason we never use cash is because it is like liquid and there is no accountability for us. Our biggest weakness with cash is spending it on food when we are out. The thing I like about the credit card is that we are always accountable- we go over our statement together and know we have to pay it off at the end of the month. because of that I always think twice before using my card. Have you heard of the site, It has been awesome for us! It tracks all of your assets and transactions. It really makes you accountable for every purchase.
This envelope system is awesome though! I really think it could help us become more responsible and aware of how we spend our cash! Thanks for sharing!

Tara said...

Been doing for a month or so and I LOVE IT! I am totally accountable to myself.

April said...

I love this post. I've been doing the envelope system for almost 5 years now and we've been debt free for 2 years...I just love it and prefer it over my debit card any day!

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