Marvelous Money: Tracking your budget with the envelope system

Friends! Have any of y’all experimented with our Google Doc budget? I would love to hear if you have! If you haven’t, though, or never intend to, that’s okay, too — I know it’s not for everyone! The key to sticking to a budget is finding a system that works for you, and so, as promised, I’m presenting another option today. Or rather, my dear friend Nancy Ray is presenting another option — the one she uses. Take it away, Nancy!

Hello friends! I’m excited to share, in my opinion, the most important key to our budgeting success. It’s called the Envelope System, and if you haven’t heard of it, just ask your grandma. She can probably explain it to you! Before the days of credit and debit cards (which really wasn’t too long ago), this was the most common and effective way to budget your money and give limits to your spending habits, and it’s the method recommended by Dave Ramsey, whom we’ve learned so much from. It works like this:

After making your monthly budget, you fill your labeled envelopes with the cash allotted for each specific category. When the money runs out, it runs out! This creates a physical limit on your spending, and it helps pace yourself throughout the month.

To better explain, here is an example of our current monthly Envelope System:

Food: $400
The food envelope is the amount allotted for all of our grocery shopping and eating out. Some couples like to separate the two categories into two different envelopes – that is completely up to you. (I like to challenge myself each month: If I have leftover money in the envelope, then we get to eat out!)

Household: $100
Household expenses include laundry detergent, lightbulbs, home repairs, paper towels, and other recurring household needs. We let this money “roll over” from month to month when we do not use it all, to cover the unexpected, more expensive repairs and needs that inevitably arise.

Auto Care: $60
The auto care envelope covers auto repairs, oil changes, tire replacements, car washes, etc. We allow this envelope to “roll over” as well, to build up cash for more expensive repairs.

Clothing: $60
The clothing envelope is only for clothes that are needed, not my fun shopping I-want-a-cute-new-dress money. For example: I can use the clothing envelope to purchase a new pair of running shoes because mine are worn out.

Blow Money: $160
We divide this money down the middle: Will gets $80, I get $80. This is our monthly “fun money” that we get to spend on whatever we want (i.e. my cute new dress.)

Gifts: $60
The gift envelope amount changes regularly, depending on what holidays and birthdays are on the calendar. Nothing is a surprise! We budget for Valentine’s Day, our families’ birthdays, and we start budgeting for Christmas in September!

Hair: $25
I don’t need a haircut monthly, but Will does. We allow the extras in this envelope to roll over and build up for my haircuts, while Will regularly takes out what is needed for his.

Date Night: $40
This is our newest envelope (and perhaps my favorite!). Setting aside time for us to simply be together, the date night envelope can be applied to a movie night, a restaurant, or maybe two date nights: pizza at home, and a casual dinner out.

Other Envelope System Category Ideas:
– Restaurant/Eating Out Envelope
– Entertainment Envelope
– Social/Friends Envelope (for coffee/lunch dates)
– Furniture Envelope (if saving for a new piece of furniture)
– Vacation Envelope (if you want to keep it separate from your bank account)

Side note: When we were saving to pay off our house, we only got $40 each of blow money monthly. Also, there was only $240 in our food envelope, which is quite different from our current $400. The point is this: YOU decide what is fair in your household, according to your income, budget, and financial goals. Don’t get caught up in comparing my budget to yours. Do what works for you.

A few things to note before moving forward: This is not a picture of our entire budget – only the cash items within our budget. Notice that none of our bills (electricity, internet, etc.) show up in the Envelope System. That’s because we pay our bills online, electronically. So while they are still a part of our budget, they are not withdrawn in cash. Same with our gas money – we always use our debit card when filling up, and we keep track of our receipts and budget for it. Also, keep in mind that these amounts change on a monthly basis. For example: we hosted a dinner party for friends last month, so we allotted extra money in our Food envelope to cover that additional expense. The Envelope System exists to help you stick to your budget when spending can become all too easy, but it does not represent your entire monthly budget.

5 tips to make the Envelope System work for you:

1. Use cash-only categories: As I mentioned before, only use the envelope system for items you can pay for in cash.
2. Personalize it: When we first started using the Envelope System, we had a bajillion envelopes. I even made sub-categories for my blow money envelopes: my iPhone envelope, my curtains envelope. Just get to a system that is agreed upon in your household.
3. Fill the envelopes once or twice a month: I fill all of my envelopes in the beginning of the month to the max, but you might feel uncomfortable carrying around that much cash. You can fill them twice a month if needed – just choose something consistent and make sure you make a note in your budget.
4. Communicate with your spouse: This goes for your budget and your finances as a whole, but it’s good to talk through the envelopes and the remaining balances as you spend throughout the month.
5. Trash your receipts: I love this part of the envelope system. Because we can simply glance down and look at how much is left in each envelope, there isn’t a real need for keeping track of our receipts. It’s a good idea to keep track of them for the first few months, but once you get the hang of it, the envelopes eliminate your need to keep receipts.

So why is this system SO important to us? Why can’t you simply use your debit card and keep good records? I’m so glad you asked!

First of all, in my experience, it’s much more difficult emotionally to spend cash. It is often much easier to simply swipe your card and justify your purchase.

Second, this system sets a hard limit on your spending. You simply cannot purchase anything else when there is no more cash in the envelope! For visual people like me, this aspect is very helpful.

Lastly (and most importantly in my opinion), the Envelope System allows you to spend your money GUILT FREE! When you and your spouse have agreed on the amount of cash ahead of time, you can spend it responsibly, without worry. I used to have major guilt when spending any of my money, knowing that it could have or should have been spent on something else. But with a budget and an envelope system in place, you can freely spend what you’ve allotted with no guilt, knowing you are being responsible with your money.

Keep in mind it takes about three months to get the hang of this or any system, so don’t give up if it doesn’t work right away. But it is worth it, I promise. No matter my income or age, I will always use this system. I dare you to give it a try, and let me know what you think!

Thank you, Nancy!! Be sure to check out Mrs. Ray’s inspiring blog and beautiful images here!