Wednesday, June 22, 2011

Our Cash Envelope System (Budgeting Week Day #3)

I have mentioned in my earlier posts here and here that in our household we use a cash envelope system.

At first when we considered this system, we thought there was no way in the world that it would end up saving us money. In the past, any time I get money for Christmas, Birthdays, or presents, I. SPEND. IT. Quick. While my sister would still have hers 9 months later mine would have been gone in a matter of 9 hours. However, we have found that not only does this cash envelope system work, it works WELL.

You see, it's a lot harder to pull a $20 bill out of your pocket and have to 'break' it to spend it on a java chip frappucchino (that you know you don't really need) than it is to simply swipe a credit card. It's also a lot harder for me to give into picking up a few little things for the kids (which add up to an expensive thing!) while shopping somewhere when I know that the envelope for kids items is down to 4 dollars.

Here's what we did:

Using the budget that we had written (again, refer to this post if you haven't done that yet), we knew what our recommended spending percentages should be and we also knew what our spending habits had been by looking over bank statements. We picked out categories of spending in which we knew the amount could vary or that was considered a 'luxury' item in some cases. I'll describe below the envelopes we use and any tips for that category if I have any.

Again, we use a four week cycle, so every 4 weeks EXACTLY, I head to the bank, get out the precise amount that we need for our envelopes and then I fill them with the set amount of cash.

1- Miscellaneous spending money/Blow money: Both Marcus and I get a set amount of this each month. We don't budget for any "fun" items, so anything of that sort would have to be bought from our Blow money. I typically spend mine on taking the kids fun places, new books, Starbucks, or small items that I may want such as earrings, salon shampoo, etc. If it's something that we really want to buy and it's not an item that fits into our budget, it has to come from our Blow money envelope. The best part of blow money? You don't have to feel guilty about whatever you buy. For example- I some days take the kids to get happy meals at McDonalds. This is as much a treat for me as it is for them because it's usually a fun outing and they can play outside for a while, and also because I don't have to cook their lunch. My husband is completely anti-fast food when possible, so I KNOW he would never want me to spend our budgeted money on happy meals. But since it's MY blow money, I can spend it however I want to. Same goes for if I want to buy a $5.00 cup of coffee- as long as there is enough in my envelope, I don't have to feel bad. With that being said though, keep in mind- the amount that we set aside is very small. We are trying to use "Gazelle like intensity" (as Dave Ramsey says) to reach our financial goals, so we don't allot ourselves much money for 'extra' items.

2- Eating Out- With two small kids that hate to sit still, eating out is not something we do often. We set aside a small amount each month in this category which covers take out one or two times and usually a meal out for a date night. We are big users of restaurant coupons and we usually try to eat at places where we either have a gift card or a coupon. We have saved so much money by not eating out as often! In fact, the amount we set aside each MONTH is now around the same amount we used to spend on one nice meal out. Crazy, huthh?!
I use this book to find my restaurant coupons:

 You can buy this from local school groups or sports teams that are selling them, or many retailers carry their own version. It is FULL of restaurant coupons, store coupons, coupons for things like discounted admissions ticket prices, etc. It is typically around $20 but pays for itself almost with one use. We buy at least two every year and keep one in both of our vehicles.

I also find restaurant coupons in newspapers, on the back of receipts, from magazines, on the internet, and collect them from friends. I keep them all in this small coupon organizer which stays in my purse at all times.

3. Diapers- I can't wait until this envelope is no longer necessary! I use coupons and stock up when I can get them for a really low price. This envelope is also where we spend from if I need things for the kids such as toilitries, medicines, socks, hairbrushes, sunglasses, sunscreen, etc. It's our MISC KIDS envelope I guess you could say.

4. Oil Changes/ Car Repairs- We don't typically have a vehicle expense each month, but we have found that in the long run, it's better to set aside a small amount each month than to be hit with a big bill when something happens. We find coupons for this in the mail usually, so I never pay full price for oil changes.

5. Clothing- We set aside an extremely small amount each month for clothing. In fact, the amount we spend on our family of four over a month is less than I used to pay for one item! We are learning to make do with what we have and trying to not desire newer and trendier items. I have a few really great friends that let me have their clothes that no longer fit and one friend even lets me have her sons clothes that he has outgrown. I try to pass our stuff on to someone else so that we can also be blessing others. It is amazing when you look in your closet at all the clothes we have and then we say "I have nothing to wear!". Have you read the books Radical or The Hole in Our Gospel? Completely changed the way we look at the things we "NEED".

6. Babysitter- We plan for at least one date night per month. We pay a girl from our church to keep our kids and it is worth every penny. It is good for our kids to be around our sweet babysitter, it is good because she is grateful for the money, and it is SO good for our marriage. I will post in the next few days about a babysitting exchange concept and how you can save money through that as well. But first let me just say- your marriage is worth the investment. For us, we will make sure we have at least one date night out of the house a month and a few date nights at home after the kids are in bed. We have to make our marriage a priority, and you should do the same for your own!

7. Toiletries- I coupon for almost all of our toiletries, but if I have to spend any money it comes out of this category. I'll post more about couponing later this week.

8. Entertainment- We budget an amount for this category each month but many months we don't spend it. Our kids are still pretty small for things that cost much money (activity wise), so typically we go to the park or to friend's houses, or to the swimming pool for entertainment.

9. Home/Yard- This is for things like air filters, home improvement projects, fertilizer for the yard, etc. We only set aside a small amount, so if there are any BIG projects, we have to save up for a few months before they can be started.

10- Birthdays- We set aside an amount each month for any birthday presents that we are going to have to purchase. This also includes things like Mothers Day presents, Fathers Day presents, Valentines, etc. Although we don't buy anything for each other, we do buy presents for our parents and for our friends on their special days. I try to stock up toys and things for my kid's friend's birthdays when I find a good price and then I use them throughout the next few months. I get a lot of them on Black Friday shopping and they last me through the year.

11. Food- This is our hardest category to stay in budget. When I used to grocery shop using my credit card, I'd have an amount that I'd aim for, but if I went over it was no big deal. I'd swipe the card and move on. Now that I am using cash, it is MUCH harder. I have been weekly grocery shopping the past two months (as opposed to my monthly grocery shopping post here) and by the fourth week, sometimes we are down to very little. Those weeks I have to get creative and use up anything we can find at home. I could just use our Debit card and spend whatever I need to, but we have determined that we're going to do all we can to stay within our set amount in that envelope. And let me tell you, it's SUCH a good feeling when you know you have!

I keep all of the envelopes together inside this clear bag:

I don't carry the full amount in most of the envelopes and I leave the envelopes at home that I know I won't need that day (Ex: babysitter or eating out).

*THE GOAL IS TO NOT SPEND ANY MONEY THAT ISN'T IN YOUR ENVELOPES! There will be some items you are spending money for that you budgeted for ahead of time, but the plan is that for anything NOT on your budget, it has to come from your envelopes.

Let's say that one month we have A LOT of birthday parties that we're invited to. I may need more than the amount we have available in the Birthday envelopes. I am going to have to take money from another envelope (such as Entertainment) to pay for it. If I don't have the money in another envelope, I shouldn't buy it.

*I try not to pull money from other envelopes if I don't have to.

*I write the amount I put into the envelope on the back each month when I fill them with cash. As I spend, I also write down where and how much I spent. This helps me to track where my money is going.

*I keep receipts in the envelopes so that I can have a visual reminder of what I spent it on as well.

*If there is money left over at the end of the month, you can decide where it will go. Do you want to keep it there and add the full amount to it for next month? Do you want to take out all remaining money and apply it to any outstanding debt that you may have? Save it for a vacation? Save it towards a splurge? It's up to you. But listen closely here- it is FUN to sit and see your hard work paying off when you have money left over...when you can know that you have been honoring God with your finances and that you are learning to live within the means He has given you. F U N.

Come back tomorrow and I'll post about steps recommended to take towards financial freedom. Thursday we'll talk about helpful ways to save and then Friday I'll wrap it up with couponing.

I have been L-O-V-I-N-G the messages some of y'all have sent me. It's so nice to hear that many of us share the same struggles and that you are benefiting from reanalying the way you are spending your money. I encourage you to post your comments here so that others can benefit from reading your strategies as well. I have gotten some good ideas from your emails and am excited to implement them in our home.

Love you all!

1 comment:

  1. Kara,

    We've never used the envelope system, but you are so right that it is much easier to swipe your debit card than get the money out of the envelope! Thanks for the encouragement to do this!



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