I've had a couple conversations with people about this, I thought I would share this with you. And, one of my resolutions, or new years goals, was to pay off debt. The envelope system is nearly critical in the success of becoming debt free...
We are still paying off debt like no other. But not quite with "gazelle speed" as Dave Ramsey calls it.
I talk about budgeting with people all the time. Not that it rules our life, but really that it sets the guidelines and parameters of what we are willing to do, for now. But living on one income (and not a grand one at that) we can't do it all, all the time, at the moment.
Don't get me wrong. We still do stuff. We have memberships to things. I still go out to dinner with friends for book club and other things. But I have made the decision that I do not need to order anything. I am there to visit with friends. I haven't gotten kicked out of a restaurant yet for not ordering food. Did it feel weird at first? Definitely! Does it still feel weird? Totally! I rent things from the library instead of buying from the store or getting netflix and hulu.
You know what, it works! We no longer over spend, even with the fabric purchases that I may not have made after starting my capsule wardrobe. Those evil credit cards don't get used.
But one thing I get asked whenever I get to talking about budgeting, or just what I hear, is I just don't know how much to put in one/each envelope! Don't use it as an excuse not to get started. Especially if you have a goal to becoming debt free!
This is what I suggest... Build a Baseline.
1. Establish a Budget. Just like everyone else says to do, this kinda needs to get done first. You need the roof over your head and the electricity/gas to cook your food. This part doesn't mean necessarily what amount to put in what envelope. It simply means to designate the different bills and things that need to get paid. The envelope amounts can come later. It doesn't all have to be done all at once. just as long as you know how much you have after all the bills are paid is the foundation needed to begin the rest. Establish this. use it for a month, or two or three to get the feel of it.
check out these helpful places for building a budget.
- Our Free Printables
- use Every Dollar from Dave Ramsey. it's a free online system that lines up with his steps. It totally puts things into perspective with meters to monitor the steps. It's a great visual! There is a subscription option too, but I haven't tried that one.
- Dave Ramsey's website has all kinds of resources check out a couple (because there is a bit) of envelope posts here and here
- A Bowl Full of Lemons has a budgeting series with some excellent printable bundles you can purchase and a step by step process how to use them and/or make your own
- One Good Thing by Jillee has a tutorial for making your own envelopes
- Check out this post on Financial Freedom about envelope systems
- Debt Steps has one too
2. Collect your receipts to track your spending for the month. You can go between pay periods or for the entire month. I do pay periods. The husband when from every week to every other week when we started the envelope system and it helped us not run out of money in the middle of each pay period. You know, so we could buy food!
This includes credit card receipts! But, the goal is to not use those credit cards! Keep tabs on your account, or just withdrawl cash and use that so you can physically touch and actually see how much you have left. But if you so happen to use a credit card, keep that receipt too.
This is why I suggest to use your budget to help you know how much you have after bills, but also to track your normal spending habits. It's easier to categorize when you have your typical purchases in front of you.
3. I just organized by receipt. you could probably track items using excel, quicken might have some options. I just used pen, paper, and receipt.
- separate them by pay period or month.
- Organize your purchases by category that makes sense to you. The common ones I have Household supplies, Personal Care, Baby supplies, care maintenance, animal supplies, date night/entertainment (and after the fabric purchase fiasco when I was building my capsule wardrobe, fabric and sewing). If you sort your receipt by pay period/month you can see the amounts that you typically spend and can use this as a stepping stone for your envelopes.
- Tally the amount you spent in each of these categories
- compare these numbers to the remaining amount in your budget. did you overspend your remaining amount
Check out these tips, pros and cons on Money Crashers
4. Add these categories to your budget and the amounts that are established. If you establish a baseline, it helps. You can do this over the course of 1-2 months and average out the spending.
Once you have that baseline established and those amounts written into your budget, take the time to reflect on your spending after each paycheck, each month. It's not written in stone and you can update and change.
I also add envelopes to account for birthdays as they draw near, anniversaries and even holidays, also known as like a sinking fund. I know it's not a saving tool, but it is working for us for now and it prepares us for those things.! But I am sure it will change as our needs change!
Don't be scared to start! Anyone can do it! You can do it too!