I’ve written a few times over the years about Dave Ramsey’s envelope system he suggests for budgeting. There is nothing more painful than handing over a wad of 20’s for your groceries. A frappuccino doesn’t seem so important when you have to hand over a $5 bill instead of swiping a a bar code on an app. It’s pretty amazing how you suddenly want to stay home so you don’t have to use that gas you emptied your envelope for. Cold hard cash will help you stick to a budget, no doubt.
I find there is nothing more burdensome than spending money you don’t have and nothing more freeing than sticking to your budget.
However, we are terrible with cash. We found it difficult to manage between two people. We often forgot our envelopes when we went somewhere and didn’t know how much to spend. Dealing with change at the end of the week was a pain. When we misplaced $100 cash, that was our breaking point.
So, for months and months we’d figure out our budget and then watch those red lines in mint.com start showing up and then do absolutely nothing about it. I always said mint.com was really good at helping me see our budget go in the red. Red lines everywhere!
However, I think we’ve found a secret that keeps us on budget using the envelope system without cash.
I’ve mentioned since the beginning of the year that we’ve gotten back on track financially. We’ve managed to stick to our budget using the envelope system and not get a single dollar out of the ATM. Want to hear our secret?
I’ve been shocked with how well this works. We’ve stayed on budget, it requires zero cash and we haven’t used our credit cards.
So here’s how it works.
1 – I create a zero-based budget using a spreadsheet. I do it a month at a time and then refine every two weeks since that’s how often we both get paid. I know where every dollar is supposed to go before we even get paid (thank you, Dave Ramsey).
2 – Then, instead of getting cash, we printed this free educational printable money and cut it out so it looked like real cash. The kids thought this was the best thing ever. We use envelopes for our variable expenses like groceries, clothing, restaurants and blow money.
3 – We use our debit card for those purchases and every day I check our account for purchases and take the money out of the envelope as we spend it.
4 – For bills that are automated, I just check off on my spreadsheet that they’ve been paid as expected.
How does this help?
Even though it’s play money and seems like a lot of double work, there is something about seeing and feeling even the fake money that registers in my brain how much I can spend. It’s a built-in accountability system that the online tool just doesn’t provide. Scott doesn’t check anything online at all so having the box of envelopes in person in front of both of us keeps it at the forefront of both our minds.
And—if a bill gets lost, it doesn’t matter!
Also, we’ve been able to get our kids involved in budgeting. We don’t share the entire budget with them, but we get them to help fill each envelope every two weeks. They even know to ask if we have money in our budget to do something.
For example, we started a special entertainment bucket so we could have family events each month and it’s actually made it more special limiting it to one event per month. It’s taken the guilt from us for spending the money, we all have a good time trying to stay on budget and for some reason it’s much easier for the kids to process that there’s no money left in the envelope than us saying, “No, you can’t have that.”
We’ve only been doing this for about 2 months, but I’ve been so excited how well it’s working.
Perhaps if the envelope system hasn’t worked for you in the past, some fun play money just might be the trick!
I’ve uploaded our personalized budget template (based off Dave Ramsey’s) for anyone that would like to see it .
I print the second tab every two weeks and keep it on my desk. I use that in conjunction with Mint and the envelopes to stay on track.
The ones that are marked in yellow are the ones we have envelopes for and the ones in blue are the ones that get transferred out to a savings account for later use.
This post is linked to Works for Me Wednesday.