Are you using the envelope system? Filling those envelopes with cash on payday and sticking to them? I know you are... right?
Here's what happens at our house to keep the cash system flowing. Long before payday rolls around our budget is written out and agreed on by both of us. Before that check is ever deposited we have a plan and we have determined that we will stick to that plan to the best of our ability. Once that check is in the bank (it's a direct deposit) we put our plan into action.
1. First we pay the bills allotted for that paycheck. We pay most bills online, through an automatic withdraw or by phone. The only bills not paid this way is the water bill and our garbage bill.
2. Next, both Hotsauce and I will withdraw the maximum amount that our debit cards allow. Occasionally Hotsauce will have to withdraw more money the following day.
3.Then we check the budget to see how much cash goes into each envelope. It's likely that we budget X amount of dollars for groceries a month, but only put half in each paycheck.
4. Fill the envelope with the allotted amount of cash.
Easy enough right? You could do that, right?
Here's a list of cash envelopes that you may want to have:
Why is it important to put the cash in the envelopes instead of keeping it in your bank account? Because it's much easier to swipe a debit card then it is to pay in cash. Don't believe me? If you only have, oh I don't know, say $55 in your food envelope for the week and you're at the grocery store, you're going to keep a very close eye on how you're spending the money. It will force you to keep a running total of every item you put in the grocery cart. The last thing you want to do is get to the checkout and have the total equal $57.34. You don't have the extra $2.34 to spend and you'll be forced to put stuff back and face the "humiliation" of the people waiting in line behind you, not to mention the checker and the high school kid who's taking things out of the bag! Ugh, no thank you!
What if you know you have $55 left in your food budget, but are using your debit card. If you go over $2.34 how likely are you to put things back and face that "humiliation"? Not likely. You'll justify it in your mind and decide that it will be OK this one time. So what happens if every week you go to the grocery store and go over budget by $2.34? You're "just this one time" has turned into going over budget by $121.68 a year. Now, what if you do that for every category listed above (with the exception of the Emergency Fund) in the suggested envelopes? That's $1,460.16 over budget because you didn't use cash.
$1,460.16.
Sounds like you wasted Baby Step #1 and then some.
You can argue the math. You can say that you don't buy house repair items every week. Fine. But, you also will overspend on groceries more than $2.34. In my mind the $1,460.16 is actually a very conservative estimate. I would also believe that if you're doing this you'll be paying out the nose for overdraft fees. It's not a game you can win.
But, you could have that money in a savings account. At 1% or 2% interest you may have broken even, but I doubt it. I imagine that you've wasted far more then you'd save interest.
Maybe you're thinking that you'll just rob Peter to pay Paul? In other words you find yourself at the checkout line and have gone over that $2.34 and you'll just pull it out of your clothing fund. Well, the first thing that I would say is that you need to grow some...discipline. But, even if you "steal" cash from another envelope you're still only spending the cash that you have and are avoiding overdrafts. Even with that in mind you will find yourself regretting this later when your impulse decisions leave your kids in shoes with holes in them for an extra month or your husband won't let you buy that new dress for your sister's wedding because you blew the money on overspending the grocery fund. Another quick fix would be to only take your food envelope in the store if you can't be trusted not to dip into other envelopes.
So you decide. How disciplined are you really? With the possibility of saving your family over $1,000 a year is there any good reason why you wouldn't go to all cash?
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| You can buy an envelope system like this from here. |
Here's what happens at our house to keep the cash system flowing. Long before payday rolls around our budget is written out and agreed on by both of us. Before that check is ever deposited we have a plan and we have determined that we will stick to that plan to the best of our ability. Once that check is in the bank (it's a direct deposit) we put our plan into action.
1. First we pay the bills allotted for that paycheck. We pay most bills online, through an automatic withdraw or by phone. The only bills not paid this way is the water bill and our garbage bill.
2. Next, both Hotsauce and I will withdraw the maximum amount that our debit cards allow. Occasionally Hotsauce will have to withdraw more money the following day.
3.Then we check the budget to see how much cash goes into each envelope. It's likely that we budget X amount of dollars for groceries a month, but only put half in each paycheck.
4. Fill the envelope with the allotted amount of cash.
Easy enough right? You could do that, right?
Here's a list of cash envelopes that you may want to have:
- Food/Grocery
- Christmas/Gifts
- Clothes
- House Repairs
- Car Repairs
- Emergency Fund (depending where you are in your savings)
- Gas
- Medical
- Insurance
- Taxes
- Restaurants
- Entertainment
- Babysitting/Daycare
Why is it important to put the cash in the envelopes instead of keeping it in your bank account? Because it's much easier to swipe a debit card then it is to pay in cash. Don't believe me? If you only have, oh I don't know, say $55 in your food envelope for the week and you're at the grocery store, you're going to keep a very close eye on how you're spending the money. It will force you to keep a running total of every item you put in the grocery cart. The last thing you want to do is get to the checkout and have the total equal $57.34. You don't have the extra $2.34 to spend and you'll be forced to put stuff back and face the "humiliation" of the people waiting in line behind you, not to mention the checker and the high school kid who's taking things out of the bag! Ugh, no thank you!
What if you know you have $55 left in your food budget, but are using your debit card. If you go over $2.34 how likely are you to put things back and face that "humiliation"? Not likely. You'll justify it in your mind and decide that it will be OK this one time. So what happens if every week you go to the grocery store and go over budget by $2.34? You're "just this one time" has turned into going over budget by $121.68 a year. Now, what if you do that for every category listed above (with the exception of the Emergency Fund) in the suggested envelopes? That's $1,460.16 over budget because you didn't use cash.
$1,460.16.
Sounds like you wasted Baby Step #1 and then some.
You can argue the math. You can say that you don't buy house repair items every week. Fine. But, you also will overspend on groceries more than $2.34. In my mind the $1,460.16 is actually a very conservative estimate. I would also believe that if you're doing this you'll be paying out the nose for overdraft fees. It's not a game you can win.
But, you could have that money in a savings account. At 1% or 2% interest you may have broken even, but I doubt it. I imagine that you've wasted far more then you'd save interest.
Maybe you're thinking that you'll just rob Peter to pay Paul? In other words you find yourself at the checkout line and have gone over that $2.34 and you'll just pull it out of your clothing fund. Well, the first thing that I would say is that you need to grow some...discipline. But, even if you "steal" cash from another envelope you're still only spending the cash that you have and are avoiding overdrafts. Even with that in mind you will find yourself regretting this later when your impulse decisions leave your kids in shoes with holes in them for an extra month or your husband won't let you buy that new dress for your sister's wedding because you blew the money on overspending the grocery fund. Another quick fix would be to only take your food envelope in the store if you can't be trusted not to dip into other envelopes.
So you decide. How disciplined are you really? With the possibility of saving your family over $1,000 a year is there any good reason why you wouldn't go to all cash?
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