For years I have heard about the Envelope system. Where you separate your money into different envelopes, which you label to pay certain bills, or for spending money or whatever you have designated it for. This is a way to keep you from spending above and beyond what you have. For some this is pretty tough but this is a great way to get you on your way to sticking to a budget.
Dave Ramsey has a simple way to help you get going:
- 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.
- 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.
- 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.
- 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!
- 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.
- 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!
Now you have to have room to change this a bit because you will have some bills that come up out of the blue or things that happen that need immediate attention but aside from those things, the envelope system seems to be a big help for those that need a push in the right direction and help with a budget. For all your envelope questions, check out Dave Ramsey‘s website for more information.