Question for Dave Ramsey Followers?

[ChefBeckyD]

I am reading Financial Peace Revisited right now, and it refers to the envelope system, but it doesn't explain it.

Could someone who does this explain it to me a little more? What are the categories, and when/how do you disperse the money, etc.....

 

[janetupnorth]

I'll type up something more for you or find some info. explaining it.People do their own varieties but basically you have food, gas, eating out (if you still do), household, BLOW (spending $), or other things you would use credit or debit for that you now will pay in cash. (Basically any non-monthly bill). You allot a certain amount to the envelopes and when it is used for the month, it is USED! No cheating and adding. It does take a few months to get your amounts down right...If you can save up so you can fill them at the beginning of the month that is ideal for me, but some people budget bi-weekly or weekly and fill them then.The key is to use it to spend only what you have, not buy extra because you have a card in hand...you do spend less using cash! It's psychological...we've ingrained ourselves! If there is money left over at the end of the month, it goes toward your emergency fund or debt snowball. I hope that helps, I'll find more.

 

[Kathy's_Kitchen]

Becky,The envelope system is a great way to budget for things that you can pay for with cash. It's actually taken from our grandparent's ways of spending money. You decide what categories you want, i.e. groceries, dining out, gasoline, clothing. Then at the beginning of the month (or on paydays), you put the allocated amount of cash in the envelope. (Dave's envelopes have tracking lines on them but you could just as easily create your own). Each time you spend from that category, you take the money from the designated envelope. When the money is gone, you are done for the month. I really like the envelope system as seeing that cash go down (or not ) really keeps a handle on how much we spend on things.HTH! Let me know if you have any other questions or need further clarification.

 

[janetupnorth]

Dave Ramsey's Envelope Budgeting System

 

[pcchefjane]

The website I think sells it separately. It's great. We have only used it a week and it has made a big difference in how we are spending!

 

[Kathy's_Kitchen]

Oops, didn't see Janet had answered until I posted but I think we covered it. This is from Ramsey's websiteave Ramsey's Envelope SystemOn a budget? Still over-spending? Trying to figure out the best way to organize your finances and spend wisely?
Get on a Simple System
I found out that Grandma's way to handle money still works. People used to always use cash envelopes to control their monthly spending, but very few do in today's card swiping culture. The envelope system is a key component of the Total Money Makeover Plan because it works. Here are a few simple basics for starting a cash envelope system: 1. Budget each paycheck. Budget is a dirty word to most people, but you must budget down to the last dime if you're going to successfully implement the envelope system. 2. Divide and conquer. Of course, there will be budget items that you cannot include in your envelope system, like bills paid by check or automatic withdraw. However, you can create categories like food, gas, clothing and entertainment. 3. Fill 'er Up. After you've categorized your cash expenses, fill each envelope with the money allotted for it in your budget. For example, if you allow $100 for clothing, put $100 in cash in your clothing envelope for the month. 4. When it's gone, it's gone. Once you've spent all the money in a given envelope, you're done spending for that category. If you go on a shopping spree and spend the $100 in your clothing envelope, you can't spend any more on clothes until you budget for that category again. That means no visits to the ATM to withdraw more money! 5. Don't be tempted. While debit cards can't get you directly into debt, if used carelessly, they can cause you to over-spend. There's something psychological about spending cash that hurts more than swiping a piece of plastic. If spending cash whenever possible can become a habit, you'll be less likely to over-spend or buy on impulse. 6. Give it time. It will take a few months to perfect your envelope system. Don’t give up after a month or two if it's not clicking. You'll get the hang of it and see how beneficial the envelope system is as you dump debt, build wealth, and achieve financial peace! See....simple!Certainly, some bills may come in at different times of the month, so you'll need to adjust your written game plan to take it one step further. You need to plan the budget based upon your pay periods. Say that you get paid twice a month. If you can write down which bills you plan on paying from each paycheck, you will not be left with a surprise bill. Spend each month's income and each individual paycheck on paper BEFORE it comes in.
Have Some Fun
I also have no problem with you adding an envelope with money just to have fun with! As long as you and your spouse have agreed on it, you are fine. There should be no lying. Agree on your budget, agree on your fun money, and be open. Fun money can be anything you want it to be. There are no rules on that envelope, unlike money in the "entertainment" envelope that is used specifically for entertainment.
What people are saying about the Envelope System: * I have noticed that since I've started using the envelope system, I'm spending about $60 less per two-week period than when I used a debit card. I think it's because when I lay three $20s down for groceries, IT HURTS! When I paid with debit, it didn't really register with me. - My Total Money Makeover member mgtyjoe * I finally know where every dollar goes, and I love it. - My Total Money Makeover member rb4580

 

[Kathy's_Kitchen]

And again , Janet beat me . Her link is to what I copied....

 

[ChefBeckyD]

I'll type up something more for you or find some info. explaining it.

People do their own varieties but basically you have food, gas, eating out (if you still do), household, BLOW (spending $), or other things you would use credit or debit for that you now will pay in cash. (Basically any non-monthly bill). You allot a certain amount to the envelopes and when it is used for the month, it is USED! No cheating and adding.

It does take a few months to get your amounts down right...

If you can save up so you can fill them at the beginning of the month that is ideal for me, but some people budget bi-weekly or weekly and fill them then.

The key is to use it to spend only what you have, not buy extra because you have a card in hand...you do spend less using cash! It's psychological...we've ingrained ourselves! If there is money left over at the end of the month, it goes toward your emergency fund or debt snowball.

I hope that helps, I'll find more.

Hmmm, okay - we don't use credit for that stuff, anyway. We debit gas - but that's to get the Speedway discount/points. (and so I don't have to get Micah out of the car to go into the gas station!)

What about checks? I write checks for groceries, etc....and that is annoying enough for people at the grocery store. It drives me crazy that every time I write a check they inform me that the cash register can fill out the check for me. I always have to tell them no thank-you, I can fill it out myself. (I need to for the duplicate check!)

I think our biggest issue is spending what we have instead of trying to save. We don't have an emergency fund, really. That has always worried me, but DH is a little less concerned about it. So, basically, for us, I think the envelope method would put us on a budget so that we can start putting some money away.

 

[ChefBeckyD]

And again , Janet beat me . Her link is to what I copied....

Thanks for your help, too - Kathy w/ a "K"! (Isn't it funny - I always think of you that way in my head!)

 

[janetupnorth]

Becky - I think it would work great for you! It will just enforce what you already do and add a tad more. Checks are still like debit cards. You know money is in the account so you may spend an extra couple bucks for something that you didn't really need but looked good.Meal planning, which you do already also helps quite a bit...you aren't "creating" meals in your mind at the story and saying I need X,Y, and Z to make it. You've already created the plan and written down only what you don't have.Also, creating meals to USE UP what is already in your house helps too.

 

[janetupnorth]

Becky - After using the envelope system, I know debit gas too because it is a larger amount and I don't want to carry all that cash. But I record it immediately and watch my budget on it closely. I think gas is a less dangerous thing and if it is debit not credit, I think it's o.k. I WILL NOT go across to the grocery store and use my debit card right now.

 

[ChefBeckyD]

Becky - I think it would work great for you! It will just enforce what you already do and add a tad more. Checks are still like debit cards. You know money is in the account so you may spend an extra couple bucks for something that you didn't really need but looked good.

Meal planning, which you do already also helps quite a bit...you aren't "creating" meals in your mind at the story and saying I need X,Y, and Z to make it. You've already created the plan and written down only what you don't have.

Also, creating meals to USE UP what is already in your house helps too.

That is my goal this week - to get the inventory done. We have SO MUCH FOOD in this house. Sometimes I re-buy stuff because I forgot we already had it!

I have a large upright freezer that is packed tight, plus the refrigerator/freezer, a pantry, a shelving unit in the basement by the upright freezer, and a couple of cupboards w/ food in them. I have 2 cupboards that are full of nothing but spices/herbs/baking products(like B.powder, soda, starch, choco chips, etc....) The only out of control spending I may have is groceries!

 

[Kathy's_Kitchen]

Thanks for your help, too - Kathy w/ a "K"! (Isn't it funny - I always think of you that way in my head!)

Apparently I said that WAY to much at Conference!

I think the envelope system would work great for you as well. We don't use credit cards either, haven't for a long time, but I still find that I spend less using cash rather than my debit card.j

And, yes, the envelope system should help in your being able to start putting money away. I can tell you , it is a great sense of security having that emergency fund! We even had one emergency where we cut spending in other places rather than using our emergency fund!

 

[janetupnorth]

That is my goal this week - to get the inventory done. We have SO MUCH FOOD in this house. Sometimes I re-buy stuff because I forgot we already had it!

I have a large upright freezer that is packed tight, plus the refrigerator/freezer, a pantry, a shelving unit in the basement by the upright freezer, and a couple of cupboards w/ food in them. I have 2 cupboards that are full of nothing but spices/herbs/baking products(like B.powder, soda, starch, choco chips, etc....) The only out of control spending I may have is groceries!

Ooh...make PB cups...Jill gave me a recipe this weekend - YUMMO!

 

[DebbieJ]

Becky, using the envelopes helped me reign in my grocery spending. That was my most out of control category as well.Once you make your budget and fund your envelopes, then you'll know how much you can set aside for an emergency fund. Once our monthly budget is done, we transfer money to our emergency fund FIRST to stop us from going over budget in other areas and taking from the EF money. We had friends over last night who started the envelopes this month and they really like it. You don't have to buy DR's system. We use the free envelopes from the bank and keep them in a basket at home. When we go out, we take just the envelope we need. We own THREE of DR's envelope systems, but we find this easier for us.

 

[ChefBeckyD]

Becky, using the envelopes helped me reign in my grocery spending. That was my most out of control category as well.

Once you make your budget and fund your envelopes, then you'll know how much you can set aside for an emergency fund. Once our monthly budget is done, we transfer money to our emergency fund FIRST to stop us from going over budget in other areas and taking from the EF money.

We had friends over last night who started the envelopes this month and they really like it.

You don't have to buy DR's system. We use the free envelopes from the bank and keep them in a basket at home. When we go out, we take just the envelope we need. We own THREE of DR's envelope systems, but we find this easier for us.

Envelopes from the bank is what was mentioned by Dave's wife in the book. So, do I just go in and ask for envelopes? I'm sorry if that's a dense question - but the only way I ever get money from the bank is from the ATM!


AND - at the end of the week/month - if there is money left in envelopes, does that go into the emergency fund, or does it get transfered to the next months envelopes?

 

[DebbieJ]

I go to the teller once a month and write a check for cash. I have a note with how much I want of each denomination so i can fund my envelopes the way I want them. Then I ask for envelopes and they always give them to me. When starting out, I would suggest you carry over the money from month to month as you figure out what a good dollar amount is for you. Then, as you get the hang of it, any "leftover" money goes to the emergency fun (or whatever your current babystep is). It took us a good three months to get our budget working.

 

[DebbieJ]

Becky, after you read Financial Peace, you should pick up Total Money Makeover. FP is the "why" whereas TMMO is more of the "how."

 

[ChefBeckyD]

I go to the teller once a month and write a check for cash. I have a note with how much I want of each denomination so i can fund my envelopes the way I want them. Then I ask for envelopes and they always give them to me.

When starting out, I would suggest you carry over the money from month to month as you figure out what a good dollar amount is for you. Then, as you get the hang of it, any "leftover" money goes to the emergency fun (or whatever your current babystep is). It took us a good three months to get our budget working.

Okay - that all makes sense. Yep - Emergency Fund is first! I am soooo thankful we don't have to deal w/ the credit card debt. We can work on our Emergency Fund, and then start in on our Home Equity and then Mortgage!

Ummm, once I get DH on board, that is!

 

[jwpamp]

If there is money left over, and you have your $1000 emergency fund set, then put it towards your debt. Pay off the smallest debt first, and I always find extra money here and there for it -- change, cashing in cans for recycling, whatever.

We have paid off $6k in the last 2 1/2 months. Love, love, love this. We have a little way to go, but should be debt free in no time!

It's funny, though. I checked out a website the other day that said we could afford a $500,000 home with a $3500 house payment based on our income and debt.

WHAT????? Are you NUTS??????

I am so sure that this is how others got into such a mess -- it's crazy!

 

[DebbieJ]

BS2 is all consumer debt, not just credit card debt. Student loans, cars, etc. It is basically everything except your mortgage. Depending on the size of your Home Equity, it might be part of BS2.

 

[ChefBeckyD]

If there is money left over, and you have your $1000 emergency fund set, then put it towards your debt. Pay off the smallest debt first, and I always find extra money here and there for it -- change, cashing in cans for recycling, whatever.

We have paid off $6k in the last 2 1/2 months. Love, love, love this. We have a little way to go, but should be debt free in no time!

It's funny, though. I checked out a website the other day that said we could afford a $500,000 home with a $3500 house payment based on our income and debt.

WHAT????? Are you NUTS??????

I am so sure that this is how others got into such a mess -- it's crazy!

That's scary, isn't it? I just keep think how FREE we will be when we aren't tied to a mortgage & home equity payment every month!

We have some ministries we've always wanted to help with, but have never been able to - and we can start a retirement fund other than our 401K!

 

[ChefBeckyD]

BS2 is all consumer debt, not just credit card debt. Student loans, cars, etc. It is basically everything except your mortgage. Depending on the size of your Home Equity, it might be part of BS2.

Yes - I think that's right. We don't have any other debt, other than our Home Equity, and our Mortgage. No Car loan, Student loans long payed off...

So, after the Emergency Fund, we can start on the HE loan!

 

[DebbieJ]

woohoo! Go Becky!

 

[janetupnorth]

Here is a link to the baby steps:Baby Steps

 

[janetupnorth]

That's scary, isn't it? I just keep think how FREE we will be when we aren't tied to a mortgage & home equity payment every month!

We have some ministries we've always wanted to help with, but have never been able to - and we can start a retirement fund other than our 401K!

That exactly my thought process through this and made me commit 100% to it.

As long as I am paying a company interest, I am paying man not God. Once I add up all those interest payment and think of what COULD have been done with the money, it is my reality check!!!!

 

[ChefBeckyD]

So, I finally got DH to sit down with me yesterday and do the budget worksheet.

We decided to do our budget based on just his income. The good news is that we have enough money from his income so that mine can be used for debt elimination and savings!

Also - I've decided I do a VERY good job with buying groceries! My grocery budget is $400 a month. HOWEVER - that includes not just food, but also all other household items. I buy toiletries, hygiene, laundry & other cleaners, vitamins, etc.... with that $400. We eat very well, at least half of what I buy is organic, and we have plenty of food in the house...plus often have friends over for meals and make meals for other people. I've decided I'm a very clever shopper. (and I don't play the grocery game or any of that type of thing).

The other thing I discovered - because DH asked if I would make more money if I had a "regular" part time job - is that I make good money with PC! (I knew that, but it was fun to crunch the #'s and see the light go on in DH's eyes!) If I worked 20 hours a week @ $12 an hour (providing I could even find a job like that right now!) I would be making less than I made with PC this past year!

 

[Get_Pampered]

Yay! Great job, Becky! I was scared to see the numbers but it is actually very exciting, isn't it?

 

[DebbieJ]

Yay Becky!

 

[janetupnorth]

Way to go Becky and great shopping work!