Frugal Friday – The Envelope System

I’ve been a big Dave Ramsey fan for years.  Back when no one knew who he was, I was reading his first edition of Financial Peace.

I was a broke college student, working to make ends meet, while taking a full load of classes (complete with student loans).

I still remember reading Financial Peace for the first time.  It was life-changing.

I did well incorporating some of the suggestions in the book for a while, and managed to pay off all my student loans and then some within just one year.  At the time, I was also looking to the Tightwad Gazette for ideas as well (I was a loyal subscriber!).

I remember being meticulous about my budget, down to the penny.  I remember doing without.  I remember eating inexpensively.  I remember using laundry money quarters to buy gas to get to work.

Yes, those were the good old days.

But, it was so freeing to pay of an enormous amount of debt in one year, while still maintaining a full school schedule and working.

Then, I made a mistake.  I eased up.

I was so proud of the accomplishment that I eased up on the reins just a bit.  Bad move.

Enter Dave Ramsey, round 2.

A few years ago, I “rediscovered” Dave (and the Complete Tightwad Gazette too!), and I felt called back.  I ended up asking for the Financial Peace University Home Study Kit for my birthday.

My husband and I watched all the videos, did the workbook, and got reignited.

One of my favorite concepts to this day is the envelope system.

While I would encourage everyone to attend Financial Peace University, I know that may not be possible for some.

So, start with a baby step, as Dave would say.  Start with the envelope system.

Take a look at where you spend money, and where it would be beneficial to switch to a cash envelope system.  For us, we have physical envelopes with cash for eating out, groceries, medical expenses, clothes, miscellaneous, “blow” money, haircuts, gifts, and parking.

Then, decide in your budget how much you will spend in each category.

At the beginning of the month, put the amount in cash in the envelope.  You will only spend from that envelope for that month.  So, when you are buying groceries, you use cash from the grocery envelope.  When the money is gone, it is gone (although, I have used my “blow” money for groceries in the past!).  Then you get creative until the next month.

When we first looked at our budget we were amazed at the amount spent on categories like groceries (used to be $750+ for a family of 4, but that was because of a LOT of eating out).  Since using the envelope system, we have been able to reduce our grocery expenses, including eating out to about $400 a month.  I’ve actually gotten it much lower, to about $200 a month, but since we have started to eat more whole, unprocessed, and organic foods, the expense has gone up a bit.  Thankfully, I do cook a lot from scratch which saves money!

Give the envelope system a try for 6 months, and I can guarantee that you will never go back!  Cash is so much better!  And, you are so much more aware every time you have to hand over a nice crisp dollar bill.  Because spending with cash “hurts” more, you are more thoughtful before spending.

Do you use an envelope system?

To your success,

Dr. Laura

This post has been shared at Simple Lives Thursday and Frugal Friday.