DO: The Envelope System

I am naturally a spender. My husband and I have come to an agreement on spending, saving and future financial goals. To get my free-wheeling spending habits under control, we went to an envelope system. The simple thing about it is, each pay period, you put the cash in that you have allocated to different budgets in your home. Once the money is gone, it's gone until the next pay period. Absolutely NO SWIPING of the debit card. My rule for myself is, if I swipe, it comes out of the next months budget (and that really hurts!)...so no swiping allowed. 

Did you know Americans on average spend more than they bring in? When you do your household budget, you will see why. It's so easy to spend a lot of money on little things, like coffee and midday lunches. The Average American spend about $3,000 per person, per year, on those items alone! (I need to talk to this Average American and see if they will take me out for coffee! :) 

If you have not set up a household budget, start here: Dave Ramsey's Total Money Makeover

(Even if your financial skills are no more advanced than a cave man or woman...you will still be able to understand and implement his easy system. :)

Allocate your spending money into envelopes:
Normal people chunk all the money that they are saving for different things into one savings account. That does not work for me. Either I would overspend on gifts, or I wouldn't use the money I have saved, such as for our Christmas downtown Chicago trip. So, if you can manage it, by all means, use a savings account for your longer term savings as well. This is just what works for us...

OUR ENVELOPES ARE:
(this list may look funny, remember, this is not our household budget of bills, giving, tithing, etc. This is the list of the money that you spend each month to make your household go.) If you don't spend from each of these envelopes regularly, leave them at home and don't touch until you need them. I usually only carry my Grocery & Eating Out cash with me. All the other envelopes are more like savings until a purchase is required.

1. Groceries - this is the biggest expense in our envelopes & the most unruly. I have a few posts on how to stretch your grocery budget further.
Save Money before you go grocery shopping
Save money while grocery shopping
Save money after grocery shopping
Make it Yourself Household Cleaners!

2. Household - all expenses such as maintenance, garden, flowers, paint, everything to do with the home.

3. Clothing - we look over the course of the year and save a little each month and only purchase at the change of the seasons. If we happen on sales in off-season, that money also comes out of the clothing budget. (that is a great way to stretch the budget! Each year, I purchase the kids coats at the Gap for $10-$20 dollars a piece, instead of waiting for fall when they are $60-$80 a piece.)

4. Eating Out - we allow ourselves generally to eat out once a week. We try to always use coupons or Groupon to make the dollars stretch farther. (it just takes a little planning!)

5. Entertainment - a small amount that is budgeted for movie night or an afternoon bike ride. Any activity that we do on family day, usually comes out of this envelope.

6. Education - our kids are in a co-op and we purchase their curriculum yearly. So, instead of waiting for it to hit...we save each month, so we have enough when the time comes.

7. Gifts -This will be the most shocking portion of your budget. Once you get through your list of all the gifts you buy during a calendar year, you will realize how easy it is to go over budget! We budget out who will receive gifts during the year and what our budget is for each gift. After we decide how much we want to spend from Valentines Day to Christmas, we divide it by the number of months and put that into the savings envelope. Stress free Christmas is a wonderful thing. And then, there is no carryover of credit card debt into the new year.

8. Travel - even if you just drive to your families homes out of state, you will need to save for the gas money to get from here to there. Figure out what, where and the budget for all travel and begin saving! And while on vacation, don't be a scrooge...make it a game when you get there, and use your creativity to stay in your budget.

9. Christmas downtown - we have a family tradition that we stay downtown Chicago, sometime during the Christmas holiday at a hotel. If we didn't save for it, we would never do it. But, we begin our savings envelope in January, saving a little each month and by December, we take a stress free couple of days in the Windy City. So fun!

10. Car - We just purchased a car. We are figuring out right now when we will sell it for the optimal cost and what the purchase price will be to replace it. The difference is what we will be saving for for the next two years. The goal is to NEVER have a car payment. It is a wonderful thing!


I hope this helps you see how an envelope system works and what a blessing it can be in your household budget!
Kristen