Starting with envelopes was hard. It was intimidating. But it was all mental, because in reality, it's not that hard. I have a freaking Masters degree, ok? It's not that hard. It just seems hard, because it's new. And it's "less convenient". Which is the point - it's less easy to spend money now. It's impossible to mindlessly spend on anything.
I did it. And now I can tell you it is one of the biggest changes, the most positive changes I have made. And also? It becomes a habit. A positive habit. After the first time, I just repeated what was successful and changed what wasn't. No problem.
There are actually many ways to do it. Many people do it virtually, not even using real cash, and there are apps and software to do it that way (I think that removes one of the most positive parts of this system -- making it hard to waste money thoughtlessly, but it is possible to do it that way). Some banks allow you to open and maintain multiple accounts, which you can use for various categories, especially when you are building up for some future expense.
For me, I use paper envelopes and I use actual cash. I love it. I take my cash out of the envelopes regularly. I count it and recount it. I shuffle money around as needed. I check what I have in cash against what my envelopes say I should have. I keep a runny tally of what I buy and how much it is. I watch the numbers go down as I spend. It's the day before payday, and I have $6 in cash on me for Food. That's it. And that's how it should be.
I have read many ideas for envelopes. Obviously, just a stack of regular business sized envelopes will work. You can also make or purchase very pretty envelopes.
With my FPU membership I received a kit of materials, and one of these was a booklet of small envelopes bound into what looked like a dark brown checkbook. It came with several loose envelopes as well. Each of these envelopes has a ledger printed on it for keeping a running tally. (See Photo 1 above)
It's pretty convenient, it's subtle and discreet. It doesn't look so girlie, so the husband can carry it too.
But I was reluctant. Here were my hold ups in starting this system:
• I was used to being disconnected from my money as money, and from my spending as spending.
• My bank does not have any branches close to me. How do I take out this much cash without having to make numerous ATM withdrawals with numerous fees?
• I didn't know what cash categories I needed to have. I figured I needed Food, Gas, Personal Items...?? What other things did I spend money on?
• I didn't know how much cash I actually had left to spend after my most important bills were paid. So how do I know how much to take out of the bank?
• I work in an office downtown, so once I leave the house I don't go back for 10 hours. What money should I carry with me daily? How much? How do I track it? What if I lose my money or get mugged?
• I don't get paid on the 1st and 15th. My first paycheck of the month can be as late as 6 days in. How do I do a monthly budget that doesn’t include money coming in on the first day of the month?
In FPU classes, this is a process you go through with your classmates. The process of: being sort of afraid and uncertain, but doing it anyway. Knowing you will make mistakes, and doing it anyway. Feeling reluctant, and doing it anyway. Not being sure how to proceed... and doing it anyway. You getting the point?
As Dave Says: This is a marathon, not a sprint. No one is supposed to do all this in one day or one week. You ease into it. Slowly.
First - The Quickie Budget
I looked at my bank account online and found out how much income I had in a month, based on the past few months. (just an average or a good estimate - it’s not a math exam) Wrote it down. I estimated what Dave calls The Four Walls: How much do I need for food? (total ballpark - I picked $400 a month, arbitrarily) For each utility? For rent? For car/gas? (do-able using old transactions online and looking for gas stations). Added it all up. This is my basic money I need to live.
Then I looked at and wrote down every monthly payment or expense I was paying out of my bank account, other than these. So that was mostly debt repayment. Added that up, for another number.
Subtracted it all from my monthly total income. First I subtracted the Four Walls - this is what I need to live. Living comes first. Then I subtracted the bills.
Very important - I did not calculate my debt repayment first, just because that is a known number, and easy. And then see how much I had left to live on. First you need the bare minimum to live. Once you have food, rent, keep the lights on, and some way to get to work, then you can address the rest of your expenses. Luckily I am not in that bad a shape, but some people are. The Quickie Budget Form doesn’t even have places to write down student loans or credit card payments on it.
This in itself was a revelation. A different way of looking at my money. First I need to live. First I need to eat.
I was then able to mark off the categories or bills I would move to a cash basis (for instance, I pay my rent in cash). I was then also able to add up my monthly standard bills and figure out how much money I had left, after my regular bills were paid.
So this process addressed, at least in a minimal way, some of the hold ups I had:
• I found out what my actual income was per month. If you have varying hours or work for yourself, there are ways to address that. I just didn’t need them, so this is what I did.
• I found out how much I was paying out in debt payments per month, total.
• I minimally figured out some categories. I minimally picked some numbers to go in each category, just to start.
• I picked what I would be moving to a cash basis, and what I would continue to pay online.
• Then I was able to add up about how much cash I would need per month, divide by 2, and that was my per paycheck cash withdrawal.
This is a really easy process if you’ve mostly been using card/s to run your life, since you can look at transactions online. 20 minutes! It’s a QUICKIE Budget. Just get a round number in there. Just write something down. If it’s wrong, change it when you find out. JUST PICK A NUMBER AND WRITE IT DOWN.
So if you are starting from nothing, and don’t know where to begin, we began here. And then we sat with it. Didn’t jump into envelopes. Didn’t withdraw cash. Didn’t change much. We were, at this point, working on saving a $1000 Baby Emergency Fund in cash. That requires things like cutting off cable, buying groceries and eating at home, brown bagging your lunch, selling things around the house, picking up overtime at work, babysitting, cleaning someone’s house. It’s a lot right there.
We took 2 weeks of saving and having this Quickie Budget done before the first of October came, and then we moved to envelopes. So if you want to do the process in The Total Money Makeover, I suggest the same. Don’t do it all in a weekend, unless Cold Turkey has worked for you in the past. Consider also if you have a family, they need to be on board with this, and they need to be helping.
Next up: more on the Envelope System.
Photo 1: Cash in the Dave Ramsey Basic Envelope System. "The Credit Card Monster." Simply Mel Weblog. n.d. LINK
Photo 2: Pretty cash envelope system. "The Cash System: More information than you ever wanted to know." Kelleigh Ratzlaff Designs Weblog. 10 Jan 2010. LINK