October 30, 2011

Envelope System

verabear Ramblings and Brain farts, Shopping 9 Comments

I probably should start a Personal Finance category on this blog. I think about it sooooo much.

Why?

I earn a significant amount of money. It should be more than enough for a single woman living with her parents, or even for a kid-less couple. Even with the car payments, there should still be enough to save.

As it goes though, I hardly save. There’s always just enough left over. And I hate that feeling of always having to look forward to the next pay day. Counting the days until my bank account is replenished. That is just not the way I want to live.

Back in 2010, I wrote this piece to Start Saving Now! For awhile I did it diligently. I followed my own advice and I built up my savings account. Later that year, I bought my iPad. I also switched jobs which disrupted my cash flow for a month. I was okay, but it meant that my savings account was dented (and it still hasn’t fully recovered).

Remember that show on Discovery, where a financial expert goes into the home and helps the couple sort out their financial issues? I can’t remember the title of the show and I don’t see it anymore so perhaps it’s been discontinued. One of the techniques she teaches couples is to stop using their credit cards, and set their weekly/monthly budget in jars.  I did a version of that. I set a two-week budget and I have to stay within that budget for all expense types. It really helped me save. I didn’t use jars though, I still kept my money in the bank and withdrew money as I needed. It was the recording that kept me in line with the budget. I used my Starbucks planner (that I had with me almost everywhere) to record everything.

Another variation of the jar system is Dave Ramsey’s Envelope System. The idea is to budget your paycheck, have an envelope per category, take the money from the bank and fill up the envelopes. When the money is gone, it’s gone. You can’t fill it up again.   What happens if the two-week period or the month is over and you still have money in the envelopes? The article doesn’t say, but I would either add them to my savings, or add it to the following payout’s budget. The latter would be specially helpful when saving up for a big purchase that won’t fit in your monthly allocation.

I think I will do the envelope system this time around. I’ll take the money from the bank and stow away my credit and debit cards so I won’t be tempted to spend more than what I have in my envelopes. Hmm.

These Receipt Organizers from Beabi would be perfect (both images credited to the Beabi website):

You can even keep change in these because they zip up. They’re reusable and would definitely last longer than your normal paper envelopes.

But more than what envelope to use, the most important thing is to define my expense categories. Will I include clothing there? I don’t buy clothes every month though. If your work includes a uniform and you know you will need to get repairs done or get a new one every few months, you should factor that in somehow. If I were to allocate an annual budget for nursing uniforms for example, maybe it would be good to plan how much that would be and then set aside money each month to build up to that budget. In my case, setting up a clothing budget every two or three months might already be a good idea to help me build up my wardrobe.

I’m excited at the idea. Before I figure out my categories though, I’ll have to sell this to the boyfriend. We both have to be doing this, not just me.

What about you? Do you follow a system for budgeting your personal finances?