Starting the Envelope System

In an earlier post, I mentioned that we’d started Dave Ramsey’s Financial Peace University and had survived the first 3 weeks (read about them here to catch up). I ended with a promise to tell you the moment I fully came on board with this system. It was the moment I saw the number $133.

But first, some insight into how we set up our Envelope System. Most of our bills are auto-debited online–all of the necessities that come out at the same time each month, so we know we can plan for those with a fair amount of reliability. We have 3 envelopes: Gas, Groceries, and Blow (because you’ve got to budget for your drug habit). HAHA! Just kidding. (It’s actually Rynn’s blow habit. The dependency’s what keeps her so well-behaved.)

We use the envelopes that came with the FPU course materials, but I imagine you could very easily make your own with some normal envelopes, a pen and a ruler, and a binder to stick ‘em all in. On the envelopes, we keep a running tally of how much cash is added to the envelope and how much is taken out:

(Note, others going through the FPU course with us are doing this in 2-week increments, but both Clayton and I know my attention span’s only good for about a week at a time–past that, it’s hard for me to stay motivated. So we do ours in weekly increments.)

The breakdown of it:

For each line item in your budget that you can use cash for, you take an envelope and write the category name at the top. At the first of the month, we withdraw the amount we budgeted for that category. Mark where the first of the money came from (“Paycheck”) and then subtract as you withdraw the money, using a “-[number]” to show the money’s leaving. Because I’m all about the visual aids. Write down how much you removed when you do it, otherwise I promise, as true as the fact that tacos are delicious you’ll forget to later. We tuck a pen in the spine of ours just so we don’t have any excuse not to (“but the pen is all the way in the office, and I don’t feel like walking 20 extra feet. Do you know how many feet I’ve walked today? I’m tired just thinking about it.”)

If you have any money left over–like you took out a $20 for groceries but only ended up spending $15–you put the leftover back in the envelope when you get home and immediately write it down–put a “+[number]” every time you put money back in the envelope. You’ll notice that even though we kept track of the exact amounts on the envelope, we only put the bills back in–the spare change we put in a change jar. So, for that first withdrawal we made for the Wegmans shopping trip, even though our balance is listed as “$115.90,” there was only $115 in the envelope. Our reasoning for this is, 1) our change jar has a digital counter in the lid, so it gives you a running total of what’s in your jar (because counting’s hard), 2) it’s not like it’s loose change strewn about on every countertop in the house, so we know exactly where to go if we need change later and 3) it keeps us from bulking up our thin envelope with twenty nickels and seventy-five dimes by the end of the month.

Because I’m anal-retentive when it comes to organizing lists, I have to put something in Every. Single. Cell in a table like this. You may not feel the need to note that the extra $5 you’re returning to the envelope after grocery shopping came from “leftover.”

The idea is that, as you get better at budgeting, you’ll be able to fine-tune your cash envelope amounts so that there’s not much left over–ideally, you’d end up with an empty envelope some time very near the end of your week/2 weeks/month, and then just start over the  next week/month/etc. (You don’t just spend the money ’til it’s gone and then immediately refill it–know how long that money’s supposed to last and then resist all temptation to refill it before you’re supposed to!) At the end of the first week, you can see that we had $53.73 left over. (So we can reuse the envelope until we run out of lines, I put dash markers in the margins to indicate when one week ended and another started. Again, because I’m a List Nazi.) We chose to put any extra money at the end of each week in a fourth envelope: “To Deposit.” After some debate, we decided to go this route for a couple of reasons:

  1. I am easily influenced. This means that I am both easy to encourage and easy to discourage. To promote the former, the “To Deposit” envelope serves as a visual reminder to me how much money we’re saving. I see a number balance rise every time we have “leftover” money, and it gives me further reinforcement that “eet’s working, boss!”
  2. It saves us from having to make several trips to the bank throughout the month just to deposit back what was leftover. I’d feel pretty silly going to the bank to deposit $3.21, just because we didn’t spend all our Blow money that week. Also, we’re both really forgetful, so the money would probably sit in a deposit envelope ANYWAY while we kept forgetting to take it with us in the morning. Then we’d forget it on the table for several days. Then we’d get it in the car, but forget to go to the bank that day, so it’d sit in there for another week and a half while we kept forgetting. Then it’d either get lost, money would fall out, or we’d finally deposit it sometime around the end of the month anyhow. (So the “To Deposit” envelope is us working with our weaknesses in mind.)
  3. We did consider the option of rolling the money over into the next week’s budget, and I think this might be an option for people who’re stronger with numbers than I am. Even though Clayton wouldn’t have had a problem doing this, I am very simple-minded when it comes to numbers–in my head, I have to have things in a very clearly-marked mental bucket. So playing the simple game of “we had $5 left over, so we’ll just move that $5 bill into next week and just withdraw $5 less from the bank” is actually really hard for me to keep track of. I don’t know WHY my brain starts throwing a 404 error when I try to math that through, but it does. I work best with a wipe-the-slate-clean approach, so Clayton, to be nice, goes along with this Organizing to the Weakest Link approach. The numbers all work out in the end whether you do it our way or this way, though, so it’s up to you.

To give you insight into the others, this is what our Gas envelope looks like:

and our Blow envelope:

A few notes on the Blow (or Entertainment or whatever you want to call it):

In our budget, our Blow money is approached as a “what can we spare this month” amount, so it’s not as fixed an amount as the other two (for example, Week 1 we had $80 to throw around, but when an unexpected-but-non-essential fee came up, we chose to take it out of Blow, only leaving us $30 for Week 2). When we have that one number, we (of course) have to split it between the two of us, and the fairest way we do this is to split it in half. Then we agreed that if one overspends their Blow portion, it’s ok to see if they can take from the other’s (for ex., if I want to buy lunch out one afternoon but have spent all my Blow money, Clayton’d be ok with giving me however much I need when I ask). The most important aspect of this is to 1) keep communication open, and 2) to not make judgement on the other’s Blow purchases unless it seems to be abusing the system (like I regularly kept coming to him for more Blow money–that may mean I either need to adjust my spending habits or we need to reconsider the amount we budgeted for Blow).

Now, I can’t speak for Clayton on this, but I know I’ve struggled with the mental concept of this. The idea of Blow is that it doesn’t matter what you buy–if I want to spend my $40 or whatever entirely on rubber ducks, then it’s “my money = my ducks.” But I don’t want to take advantage of it by running through my amount and having to take some of Clayton’s. But I know that having the “mine/his” attitude about shared resources is a bad, bad idea in a marriage–it can lead to resentment and fear. And as we all know, fear leads to anger, anger leads to hate, and hate leads to suffering.

That’s right: having too much ownership in a marriage leads to the Dark Side. An that’s some bad, bad juju right there.

Anyway. I worry over making sure I spend “my” amount of Blow carefully so that I don’t find myself wanting to pinch off Clayton’s. And this approach has actually led me to be VERY sparing in how much of my money I spend. Putting out my own cash hurts more than swiping my card, so I tend to horde it…EXACTLY AS DAVE RAMSEY WANTED ME TO.

Clever bastard might actually be on to something.

But, I’ve rambled this much and almost forgot about that number I mentioned up top. Remember that $133 I talked about? The number that got me on board with this whole program? It came from this:

BOOM! $133 saved in a week because we were actually careful, for once, about what we spent. And while that may not be a huge amount, it is a non-trivial amount for me, esp. in a week’s time. This is what showed me that we were on the right track, that if we stuck to this plan, it WAS possible to save money. When we set up that envelope, I’d expected to be moving over something like $10, maybe $30 at the most.

And since I totaled up the leftover bills from each envelope and lovingly wrote that 1 followed by a couple of 3s, it all became a game for me. How much can we save in a week? Can we top the first week’s amount? Where can I cut corners in my spending? Using coupons at the grocery store (when I haven’t before)? Taking my lunch every day for the week, instead of going out for an afternoon? $8 here? $2 there? It’s kinda fun and numbers don’t seem quite so intimidating to me anymore.

Since I got some positive feedback that at least some of you care about our process and progress here, I’ve got another question for you. Would any of you be interested in budgeting, or in hearing about the things we’ve learned/the spreadsheets we use to keep track of and plan our budget? Let me know–if not, no worries. If so, I’ll see what I can scare up and pretend is something intelligent.

P.S. Let me make very clear that I didn’t post our actual budget amounts because I’m inviting your opinion on how stupid you think Dave Ramsey or this system is (thinking it’s unrealistic is different, and I’ve got no problem chatting with you about it. Come on over–I’ll put on some tea.). To be very blunt, I don’t care. Nor do I particularly care for unsolicited advice on how to spend our money, whether you think $80 bucks a week is too much for Blow money, etc. (Though I’ve got no problem telling you how we came to that number, if you’re interested.) I’m putting this out there in case any others of you are in a financial hole or simply feel like you could be taking more charge of your finances and might be wondering what others are doing to get themselves out of said hole or to make their money behave like they want it to.

</end disclaimer>

Carry on.

9 Comments

Filed under Dave Ramsey, financial misadventure, Financial Peace University, milestones

9 responses to “Starting the Envelope System

  1. excellent post, very informative. I ponder why the other experts of this sector don’t understand this. You should proceed your writing. I am sure, you’ve a huge readers’ base already!|

  2. I think your blog posts about this subject are awesome and I am interested in hearing your progress. My husband and I are considering switching to this as our current system (none) doesn’t seem to be making our savings grow! Our downfall is I have hobbies and he has hobbies so purchasing supplies for these hobbies would be restrictive, but I guess that’s the point, huh? Being the cook of the household I found it interesting how you plan so many meals around something as simple as a turkey and pork. I figured we would have to eat ramen noodles and hot dogs (blech) to survive. I believe making starting with a weekly budget is a brilliant idea.

    • Jenni, I’m sorry it took me so long to respond to this comment! I guess it slipped under my radar and I didn’t notice them on my blog dash. I’ve been meaning to blog an update about how it’s still going, actually, so I’m glad your comment reminded me to get on that :) I’ll go into more detail later, but so far, so good. By being really strict with our eating-out (which was our big money-sink), we’ve managed to save money in what feels like record time. It’s certainly faster than we’ve ever saved before. And your comment about ramen and hot dogs made me laugh–I think I was in the same boat, actually, when my husband first suggested doing the week-long meals. I was like, “Oh, this is going to be terrible…” :) You may have already started with the envelope system by now–if so how’s it going?

  3. it’s a very interesting idea to move all the $$ out of your envelopes at the end of the week! Do you think you’ll keep doing that as you go on or do you think you’ll lower the amounts you budget? We always treated our envelopes as sinking funds, but at the moment we aren’t using our envelopes at all for groceries- but we are paying for it. Life’s been crazy with all the traveling, but it’s about to be belt-tightening time in our house :o It was nice though when our car inexplicably stopped working, we were able to pull long-ago budgeted $$ out of our car envelope. Also we have tons of excel budget spreadsheets we’ve been using ever since we did financial peace many moons ago (before we were married- geez it’s been a while). Sounds like you’ve cooked up your own, but if you want to see them- let me know!

    • For now, we’ve decided to keep the amounts the same. Once we have about 3 mo. of data, we figure we’ll have enough data to extrapolate trends from. Our budgeting may change, but we’ll see.

  4. How happy you must have been to see that plus $133! That is not an insignificant amount of money. In one year, that could be $1596! I won’t get into compound interest (but I’ve been reading a lot about it), but it could be much, much more in 40 years. :) I’m happy for you guys!

    • Thanks! I was a bit awestruck when I realized it was possible for us to save that much in a week. A freakin’ week! I knew we were overspending on our eating-out habits, but I DIDN’T realize how much we were over-budgeting at the grocery store.

  5. I think this is a great thing you are doing. Not just the following Ramsey’s advice but posting about it. Anybody who would tell you how to spend your money is an ass. Seriously. No one’s business.

    I’m intrigued by the idea of saving money– am awful at it, actually and love to read about other’s successes. Certainly, I’ve had more success at grocery budgeting when I take the cash out once a month and just spend that.

    Have you ever read The Tightwad Gazette books? I love those and think they go well with Ramsey’s approach– frugality, putting money where your priorities are, etc.

    And it’s a huge issue for me the eating out all the time like you mentioned in your last post. How are you dealing with that? Are you eating at home? When you eat out does that have to come from “blow” money? (Are these questions too nosey?)

    Good work, though! You’re inspiring me!

    • haha Yay, I’m inspiring! :) I haven’t read the Tightwad Gazette, but I’ll definitely look them up now. We’re handling the not-eating-out pretty well. A few things that’re helping us:

        We’re cooking all our meals at home. Despite that, because we’re ALSO shopping smarter we’re still saving money on our grocery list.
        We’re specifically trying to make meals that we can eat throughout the week and freeze for later so that we can do more meals with less.

          Prime example: Assuming you eat breakfasty-type stuff for breakfast, you’ve got 14 meals to plan for (lunch and dinner for 7 days). Last week, Clayton took a nice afternoon and smoked a 7 lb. pork shoulder and baked a 14 lb. turkey (for the 2 of us and a 1 yr. old, so 2.5 portions per meal to consider)–we kept out enough of the meat to last about 3 meals each, froze the rest, and then made our weekly meal plan based around those 6 meals and came up with smaller meals that would give us a tastebud-break from pork and turkey. For about $22, we can get nearly 3 consistent weeks of meals (if we de-thaw carefully).

        We have a specific line item for going out that’s different from our Blow money. Because that only comes out to around $30 a month, it builds anticipation for where we want to use it–b/c we don’t want to put that meal out at the beginning of the month and leave ourselves possibly missing an opportunity to go out with friends or something later, we tend to do a lot of what-would-be-the-ideal-place type planning. After all $30 isn’t really enough for a fine dining excursion, but it’s more than, say, a night at McDonald’s (if you ate there). So we find that we do more planning about where to go with the 1 night out instead of actually pining for it.
        Also, when we eat out often, we find that we get into more of a habit with it, and when we spend more time eating at home, we’re not as inclined to go out. Our desire to go out actually decreases when we’re eating more meals at home. B/c we’re cooking things that we really like to eat, we’re doing daily reinforcement into cooking at home, whereas, when we go out, we’re usually like, “Huh. I remember this as tasting a lot better before I realized I knew how to make it myself for cheaper…”.

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