1/5/09 - The envelope budget

As requested, here is a general idea of what the envelope budget entails. In a nutshell, the budget envelope is simply using several envelopes filled with money to determine how much you do/will spend on certain items.

This is not a new idea, and apparently has been in use for MANY years. When we first started it, we mentioned it to Cristi's grandmother, and she thought it was interesting that we would start something that she had been doing for 40+ years. Apparently, she has been using a similar concept for quite some time. Although she had a limited number of envelopes, the concepts were definitely still being put to use.

We were introduced to this form of budgeting through Dave Ramsey. He has a program called Financial Peace University which we did not take, but we did borrow the cds from a friend of mine and I listened to every single one of them. Some did not apply to us, some really hit home. Although Dave preaches heavily on many areas, the primary is to never carry debt...ever...at all...SERIOUSLY...NO DEBT!!!! In an effort to eliminate debt, he introduces the idea of the envelope budget.

So here is how Cristi and I do it. We started with a list of ALL of our bills. We do actually use Dave's zero budget document to list what everything costs monthly (on average) and made sure that our average monthly income was basiaclly accounted for every month. This is definitely not necessary for the zero budget, but it gave us a good idea of where we stood. Although technically unrelated to the envelopes, I recommend it. On top of giving us actual dollar amounts, the sheet also had suggestions on what to use envelopes for, and what no to.

For us, I believe we wound up with roughly 15 enveolopes, from Raider's envelope (covers food and vet visits) to Cristi's hair care and makeup, from Cristi's Diapers to everything we might buy at Wal-mart. In the top right of each envelope, I wrote how much goes into each envelope every time we get paid.

For example, our diaper budget is $15 every two weeks. On the flip side, our grocery/Wal-mart budget is $200 every two weeks. In the top right hand corner, I right this down. I do this for each envelope we have.

Then, every two weeks (the Monday after we get paid), I pull out all the envelopes, and add up how much those envelopes add up to. In our case, it hovers around $500. I go to the bank, and withdraw the amount in cash, typically in smaller bills, to distribute in each of the envelopes. So when I get home that evening, I place $15 cash in the Diaper envelope. Likewise, $200 goes in to the grocery/Wal-mart envelope.

When we need to go to Wal-mart, or when we head to Sam's to get diapers, we make sure that we bring the envelope with us. We know how much money we have in the envelope before hand and make sure that what we purchase will cost less than what is in the envelope. In the case of diapers, we need to refill about every 5 weeks. At a cost of about $40 per case of diapers, we just make sure the money is there.

In the situation where we have an envelope that is short on cash (this week we have already spent $150 of our grocery envelope, with a week left to go), we also have an "Extra" envelope (that is fully part of our budget), and so if need be, we can always use the extra money to cover overages.

Now, if we don't use all of our bi-weekly money, we just leave the money in the envelope until we need to use it. This has come in extremely handy for us. Cristi's laptop was half purchased with our extra money that had saved up over time (the rest was with birthday money). We just had $300 of work on our tahoe, a majority of which had already been saved up for using the envelopes.

In my opinion, this covers two major downfalls that people can typically fall in to. The first is that it is sometimes difficult to know how much you are spending on something without actively tracking it. This basically tracks your spending, and locks you into a certain amount, so not only are you not tempted to overspend, if you truly follow the envelopes, you CAN'T overspend. The second is that it prepares you for unforseen or forgotten areas. Taking Raider to the vet can get expensive, especially when he needs shots and stuff. By putting small amounts back every two weeks, when it comes time to actually pay the bill, it does not ever touch our bank accounts because we already have the money ready to go.

I can assure you that you will not get this correct the first time around. We've been doing this for a full year now and in the next week, I'm going to revamp several of the areas that we budget for. For example, we will be combining Repairs/Tires envelope with Oil Changes to have a simple "Auto Maintenance" envelope. Our grocery budget will go up, while Cristi's hair care will probably go down.

If you decide to go this route (which I can't recommend enough), don't get discouraged if you run out of money the first week (or even the second or third). Just adjust everything until you are satisfied with where your money is going. If you start out budgeting $400 for groceries per month, but actually wind up spending $600, you'll need to figure out where you will spend $200 less in another area.

I hope I have been able to explain what I want in the above paragraphs. I've never claimed to have the ability to word thing eloquently, in fact I'm well aware that I tend to get long winded, confusing and quite boring on occassion. I'd be more than happy to field any questions you might have. Either leave a comment, or send me an email directly to: GravyTrain6 (at) gmail (dot) com.

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3 Comments - Leave one yourself

It makes sense. It just seems more complicated. I don't really have a budget or plan. I just always have the mind frame of spending as least as possible. I could see where it would come in handy though.

By Blogger sdhorton, at January 5, 2009 at 9:53 AM  

We have talked about this before, but just briefly. Next time I come over, I want to look and see what envelopes you have and kind of go through with you what I might have, so maybe you could help me a little. I am, for the most part, good with my money, but its not going to be just "my" money anymore. I've been wanting to at least try it out for awhile.

By Anonymous Greg, at January 6, 2009 at 12:16 PM  

Big WOOT for Dave Ramsey! We've done the budget since we were married and I can't imagine living without one. Also (crossing fingers) we'll have my car paid off in February and be STINKIN' DEBT-FREE!!!!!!!!

By Blogger Kelli Stuart, at January 28, 2009 at 10:47 AM  

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