Earlier this week I talked about how we have been successfully using an envelope budgeting system for over a month now. We identified some things that we spent outside the budget, but for the most part we did pretty well staying on track. Well, I believe so much in this approach to help people get on track with a budget that I’m now going to share exactly how we came up with our system so you can make one too!
|Photo by DarkYES|
One thing to keep in mind when creating any budget is to know that it will not be perfect on the first draft. In fact, it probably won’t be perfect on the second or third either. It takes time and many iterations to get to the point where your budget actually meets your planned expenses simply because things change too much. If we all lived in a perfectly predictable world, budgeting wouldn’t even be necessary for anyone.
When we first started with our budget, we realized just how many categories there could possibly be. Our first list consisted of just 5 categories, and then our second list had over 40 categories. This was all before we’d even STARTED using them! Believe it or not, I don’t really think it matters if you want to use a general set of envelopes or a really detailed set. What really matters is how much time and effort you want to spend keeping track of each and every one.
|Photo by drhunter|
One key here is to only include categories for things that you can’t pay online or through an invoice or bill. Things like mortgage, car payments, utilities, credit card bills, etc. aren’t good candidates for cash envelopes. You should be paying these bills online or by writing checks for the bills as they come in. The envelopes are for expenses that actually MAKE SENSE to use cash for. Anything that doesn’t come as a bill in the mail is probably a good candidate for cash. Again, it’s all about how much time and effort you want to put into it.
How did we decide to do it? Well, after looking at that big list of 40 envelopes to make, we realized that a lot of them were related. In fact, MOST of them were going to be purchased at the same store in one trip. Can you imagine being at a checkout counter and having to gather up 10 envelopes worth of money and only take the right amount from each one while making people wait in line? Well my wife sure as hell couldn’t either. LOL! This system has to be convenient folks, or you’re going to end up not using it at all.
We took our big list of categories and started combining them not only based on how they related by items, but also based on where we normally purchased them. For example, we have one single envelope for ‘Groceries’. This envelope used to be SEVEN envelopes including food, pet foot, baby supplies, toiletries, cleaning supplies, gardening, and medicine (over the counter). Well, we get all that stuff at the SAME PLACE. Even if we shopped at 3 stores for all of that stuff, it’s very easy to get any combination of those categories at any one store. It just makes sense for us to have one budget for an all-encompassing ‘Groceries’ category than to mess with balancing all those other groups.
This is probably the most difficult part of the entire project. People try to get the most perfect number when doing this. If you’re sharing your budget with someone else, then it gets REALLY hard. This is where you find out what’s important to who, and where you’re willing to give up one thing for another. I’m not going to go into the details of how to pick your numbers here, because "how to calculate budget amounts" is probably a whole book…not a paragraph in an envelope budgeting article.
We started with our current budget. We’ve been iterating over this budget for a number of months now, and it’s getting closer to what we actually spend each time we look at it. We simply combined some of the categories on the budget to match our new envelope system and added up the numbers for each new category. Once there, we knew how much to put in each one.
Now I’m not one to advertise to the world how much money I put in each category, so I didn’t want to put my amounts on the envelope with the label. I look at the spreadsheets often enough to know what the amounts are and use that to keep track of everything. However, a nice little tip for those of you that like to forget how much you get each month in your envelopes could consider writing down the number inside the envelope so you can remember when you’re out and about.
Keep Track of Envelope "Deposits"
After using the envelopes a little while, I realized that there was really no way for me to know for sure exactly which ones I’d already filled and when. There’s a number of different ways to keep track of this, and I actually do a couple of things.
One way, is to keep track in your budget spreadsheet. I turn all text in my budget spreadsheet blue once I’ve paid that amount to whatever bill, expense, or envelope "deposit" that requires my money. Since my budget has a column for every single pay-period (I don’t budget from month to month, I base everything off of our 2-week pay-periods) I can keep track of when I paid each expense on its own pay-period. So when I take the money to put it in the envelopes, I change the text in the spreadsheet to be blue for each category.
Another way to keep track of when I put money in the envelopes is to keep a list of the dates that I’ve already made a "deposit" on the envelope itself. I just made a few months worth of paydays along the bottom, and we cross them out when we put money in. This way, when I’m in the store thinking "oh man, I’m not going to have enough for everything I wanted" I can look at the date and see how close I am to the next "deposit" and plan around it. I’ve found this very helpful for my wife to keep track of how much we have to spend and more importantly, when we have it to spend. She doesn’t like looking at spreadsheets all that much, but having the amounts IN the envelope and the dates ON the envelope, she can get an idea of what to plan around as well without actually going down to the computer.
Fill The Envelopes With Cash
Now for the fun part! :D Whether you do your budget monthly or bi-weekly, the most exciting time around here for us is actually putting money in the envelopes. Each pay-period, we stop by the bank and withdraw all the money needed to fill all the envelopes. Having that cash in hand is such a strange feeling after having just used plastic for everything all the time. It’s actually a lot of fun knowing that we’re going to only spend what we just took out, like a big oversized monopoly game or something.
That evening we sit down and fill the envelopes, check everything against the spreadsheet to make sure we have everything in order. Update our blue text and cross out our dates…then we’re on our way until the next payday!
I hope those of you interested in making a budget system are able to do something very similar to get started. Most of the hesitation in creating a system like this came from the fact that we thought we had to have everything perfect right away. That is NOT THE CASE!!! It won’t be perfect the first time. You have to modify it over time to fit your actual needs!
So with this week’s theme that started with OUR successful envelope budgeting, I’ll continue to HELP YOU with envelope budgeting by showing you exactly how to modify your system over time in an upcoming post.
As always, I welcome any tips that any of you would like to add. I also love hearing your stories and opinions, so jump in and let us know how you’re doing with your envelope budget system!