Envelope System

So, you know by now that I am not a credit card fan, but how do you actually use cash?

OK - so, written out from my side of the issue, this is a funny question, but I wouldn't have been laughing a few years ago and I hear some people who really do wonder...

We have been propagandized to death with the penguin march of the plastics and it has become a huge method of transaction today. So much so that many of you might be balking at the idea of walking around "with all that cash!" I mean, what about muggers!

Believe me, we've been through this discussion a few times. In fact, I didn't bounce right back to cash myself without a little cajoling from Dave. Some of the arguments can be found in another post about Plastectomies (which should post 2/8/09).

Basically, you will spend more with plastic, whether credit or debit - to the tune of 12%-18%. Averages being what they are, I suspect that you might do well one time and much more poorly the next; or, like me, go ahead and buy that ginormous wall tent at Econo-Mart because its good to go camping with the family. (Even Gary Smalley says so.)

Just the same, Doritto breath, plastic is a budget buster. And a mugger can get a lot more than cash from the average credit card information these days.

So let's assume that you see the value of cash over cards, but what about the details?

These days, as long as you have the little Visa (or other) sign down in the corner of your debit card, it should carry a lot of the same benefits as your credit card, but without the debt. You should ask your bank if you aren't sure - just don't let them talk you into a credit card anyway. Most car rentals and hotels will take a debit card. And most of them also take cash.

So, assuming that you have now set up your budget, the envelope system is simply the real part of your paper plan. So, as if you had drawn up the plans for the house on paper, then built it, so now you have drawn up the plans of the budget on paper and built it in your envelopes.

And we do mean envelopes. You can go buy them on the Dave Ramsey site too - and I do recommend the Deluxe Envelope system in particular. But you can just use any envelopes to label and insert cash. If you are going to the grocery store, then take the FOOD envelope. If you forget the FOOD envelope, then you should go back home and get the FOOD envelope.

I recommend that you get the system because of this, because then you have it all with you and it is well organized too. Crystal actually started carrying around Dave Ramsey cards to give to people because so many people asked about it and thought it was so neat.

If the money runs out in that envelope, for that category, then you stop buying. If it is something that you NEED, then go home to your Honey and re-arrange the budget and then the cash in the envelopes. You both have to be in agreement. There at least needs to be a phone call to get the approval on a revision.

We do not include utilities, phone, mortgage or other mailed bill items in the envelopes. For those we still write checks, which cost money, GGRRRR. Online is a good way to get around this, and Dave recommends the Auto Billpay stuff. But I am not quite there yet. I like to be able to watch all that and send them when we know we are ready.

We have a seperate account for gas and Internet purchases. Crystal, with three kids in the van does have a certain point there...

Also, as you work the budgeting out, expect it to take about 90 days before you actually get it to work. We had ours pretty well going in 60 days, but we already had over a year's expenses recorded, so we knew the trends already.

I hope this is helpful. Feel free to call or email any questions...

Bughhhget...

"I know that I need to to do it... ..but ugh!"

I left the morning before with all sorts of intentions, not unlike the valiant knight with brandished sword; but I came home with tarnished armor, my helmet in my hand, my sword dragging behind me on the ground. I was ready for my recliner - not to sit at the desk and do battle with more numbers.

Well, I know that procrastination did get the best of me from time to time, but the end of it came down to my own maturity. I had to step up, or better yet, grow up. I took a lot of inspiration from The Dave Ramsey show, grateful to hear callers who were worse-off than me, others who were better off, and still others in pretty much the same place - and I realized that the difference between the callers who had done things right and those who were like me was entirely audible. Fridays on Dave's show became very good for me. On Fridays, crazy excited people call in to yell, "I am debt freeeeee!!!!"

There is a difference between that crazy, jubilant scream, and my own look what the cat drug in appearance coming up the walk. In order to get through the debt, we had to stop the poor spending habits, and that required a real, written plan that my wife and I could both agree.

It isn't some mystic or scientific ordeal to arrange a good budget. You can do it with any piece of paper and a pencil - maybe a calculator for those of us who need a little mathematical verification. A good budget is one that takes care of the priorities first, then works its way down the list in descending priority. I recommend this form or something like this...

I mimicked the same thing in an Excel document that we still use. It works well for us because we set it up for us, but if you want to take a swing at it let me know and I will send that to you to take a gander...

Dave and Crown both have budgeting software that you can also purchase. I just don't recommend getting bogged down with anything if you are just beginning a budget.

Don't get crazy on the details. Don't over-extend your spouse's attention span when you have it done. Don't get absorbed in some software financial program. Just put it together, then go over it when you're done in about a ten minute meeting with Honey. You make it, your spouse vetoes, you revise, then you present it again - until you have a plan. I know, it sounds simple... but this is where our money fights really ended. We both held each other to the plan that we both agreed to stick to.

Start with the essentials. Every good financial planner that I listen to will advise this.

Give/Save - if you put these at the bottom, they will never get funded. Give your offering as you are led. Save until you have a small emergency fund (we did the $1000 "Baby Emergency Fund") put away in a saving account. (Do this by paying minimums on all debts until you have it funded.)

Start with the Rent or the House payment - on time, or ahead of time.

Food - I was surprised at how much we were spending on food. And I was disappointed to learn that there was rarely a shortcut in this category. On the other hand, my wife is a great bargain hunter and we have found ways to manage this category really well. Our total spending in this now averages around $400/mo. but we went for a while at $300/mo. (Eating out had to end for a while, however, and does not belong in this category at all, but somewhere nearer the end...)

Auto/Repair/Gas - I tend to lump these together a bit. If you have a car payment, then be sure to keep making those payments - it gets you to work. I hope to explore the car thing another day, but do check out the link on the sidebar... We have had to make a number of adjustments to the gas part - essentially it doubled twice since the time we started. We include oil changes and minor repairs here as well.

Medical - you can bet that this will happen if you have kids, so put some money here. (Keep in mind that though you plan to save for the emergency, you can plan for prescriptions and deductibles.)

Once you have covered your necessities, then add lines for the creditors. When you run out of money, then you are done. Will they like this, no. I have to say that God helped us to make all the minimums throughout our payoff.

Continue to put every expense family into the budget. Be sure to include money that you will spend - even though it isn't a real category. We found that having $10/check for each of us to spend however we wanted made sticking to the rest of it easier.

In this way, you spend everything on paper, every time you get paid. This worked very well for us, and we still follow it.

This is just the basic budget concept. If you have a sporadic income, then you will need to focus on another concept, which is to pay the minimums, but save the leftovers so that you have something to draw from later. People who are on commission - such as realtors or self-employed business owners - will most likely have to do this. Save the leftovers so that you have a few months of expenses covered, then pay off the debts.

Here are some free forms from the Dave Ramsey site...

If you have an unexpected or overlooked expense come up, then you and your spouse both decide what other category suffers. Never use the credit card. Stay away from the drive-thru and avoid spending with your debit card for planned purchases. I think this is another subject to cover, but we use the debit for gas and cash for everything else. Occasionally, like tonight, I will stop to get a few things from the store for dinner with the gas account debit card, but this too could be planned for in cash. It is way too easy to blow the budget with that little piece of convenience.

On a future post, I hope to point out some possible areas that you might be over-extended, and may be able to curb some of that for some relief in the budget.

Until then, God Bless.