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Baby Steps: The Envelope System

December 22nd, 2008 Leave a comment Go to comments

You are going to either love or hate the envelope system.  All of your spending you can possibly do with cash, you use envelopes.  The idea is that you know exactly how much money you have to spend on a category, and you know exactly how much is left.  It’s going to make you think.  Do you really need that item?  If you buy those Twinkies, will you have enough for milk left over?

Most of our envelopes we fund for two weeks (the length of our pay period,) but the groceries envelope we fund for a week at a time.  We found it just too easy to overspend the first week and then be worried the next week about having enough to purchase everything we need.

If you use my sample budget, the amount for your envelopes will not only be totaled, it will also do a breakdown of what denominations you need to fill each envelope correctly.  When my wife and I first started, we had trouble getting the right amount for each envelope, especially while tweaking the budget, so I did a bunch of simple formulas to figure out what bills went into each envelope and then totaled them in a box at the bottom of the budget.  We cut that box out and hand it to the bank teller with our cash check, which seems to please them, so it’s a double bonus!

Hundreds 1
Cash Fifties 2
for Twenties 5
Envelopes Tens 3
$336 Fives 1
Ones 1

Even if you don’t like the idea of the envelope system, give it a try.  Adjust your amounts or what you put in envelopes.  After the price of gas got up to almost $5/gallon, we quit using the gas envelope and just tracked our gas purchases via a virtual envelope, using a savings goal in Quicken.  I drive about 120 miles a day round trip, and I felt the amounts were getting unmanageable, not to mention tempting to misuse.

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