Someone pinned this picture on Pinterest of them dividing their money into different envelops as suggested by financial expert, Dave Ramsey. His explanation of the envelope system was simple and made cents/sense, so I thought I’d share it. My thoughts are in PINK, of course. I hope you enjoy!
Get on a Simple System
The key component to Dave Ramsey’s, “Total Money Makeover” is the envelope system. What is the envelope system, you ask? Well, according to Ramsey, its “way to handle money still works. People used to always use cash envelopes and even Quicken to control their monthly spending, but very few do in today’s card swiping culture”. I will say that it works and the comments to post prove it. Check out Ramsey’s simple basics for starting a cash envelope system.
- Budget each paycheck. Budget is a dirty word to most people, but you must budget down to the last dime if you’re going to successfully implement the envelope system. While I know plenty of people who budget a certain percentage of each check, I budget specific figures.
- Divide and conquer. Of course, there will be budget items that you cannot include in your envelope system, like bills paid by check or automatic withdraw. However, you can create categories like food, gas, clothing, and entertainment. I usually work off three main categories: groceries, restaurants/entertainment, personal maintenance (hair, nails, or anything that will help me feel “pretty”). I chose these categories for myself because these are the areas I could be tempted to overspend. I pay my bills off the top and then I budget each paycheck into these categories, which were listed in order of importance.
Fill ‘er Up. After you’ve categorized your cash expenses, fill each envelope with the money allotted for it in your budget. For example, if you allow $100 for clothing, put $100 in cash in your clothing envelope for the month.
When it’s gone, it’s gone. Once you’ve spent all the money in a given envelope, you’re done spending for that category. If you go on a shopping spree and spend the $100 in your clothing envelope, you can’t spend any more on clothes until you budget for that category again. That means no visits to the ATM to withdraw more money!
Don’t be tempted. While debit cards can’t get you directly into debt, if used carelessly, they can cause you to over-spend. There’s something psychological about spending cash that hurts more than swiping a piece of plastic. If spending cash whenever possible can become a habit, you’ll be less likely to over-spend or buy on impulse.
Give it time. It will take a few months to perfect your envelope system. Don’t give up after a month or two if it’s not clicking. You’ll get the hang of it and see how beneficial the envelope system is as you dump debt, build wealth, and achieve financial peace! See … simple! Truth… I sort of fell of the wagon for a while. I actually, couldn’t remember what purse I put the envelopes in until today, when I found them, and I had $20 in my restaurant fund. I started back on the system TODAY!!! It takes work but most great things do….
photo credit: Tales From the Coop Keeper | content: David Ramsey
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What are your categories for your envelopes?
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