Friday, June 15, 2012

Budgeting With Envelopes

I was so excited to see that some of you are interested in the budget and envelope system that we are using in our household.  Like I have said many times over, I am obsessed with budgeting and am so determined to make this work for us.

So let's get to it, shall we?

I tossed around the thought of how personal I planned to get with this topic, cause let's face it, money is a hush topic.  For whatever reason, I honestly don't know why.  But this blog has always been an honest and open outlet for me regardless of the topic.  So why change now?

Where We Started
We took the Dave Ramsey Financial Peace University class through our church.  This allowed us to really get on the right mindset and be prepared to work as a team.  Dave Ramsey rocks.  After the classes ended, we were set out to figure out this budget thing.  Yeah, right.  We had no clue where to start.  We had all of the tools, we had the motivation but we didn't know where to start or where to go from there.  We felt defeated and discouraged before we even got started!  It was not a good place to be.

That's when we decided to hire a budget coach.  She is trained by Dave Ramsey's staff and because we completed Financial Peace University, she gave us $100 off her sessions.  We paid her three payments (over three months) of $146.  That "bought" us six months of in person counseling and a lifetime of phone/email contact.  The BEST money we have EVER spent.  Ever.  With the help of Connie, we developed a monthly budget, the envelope system AND the mindset to keep going even when it seems hopeless.

To build our budget, we were given a fancy schmancy spreadsheet in Excel.  It is a Dave Ramsey spreadsheet that has tabs for everything.  Budget (how much it costs to run our home), Distributed Budget (how our money is spent each month), Savings (our savings account micro-managed), and our Debt Snowball (a list of all debts, balances, monthly payments and interest rates).  There are several more tabs but those are the ones we use.

To make your household budget, you don't need a fancy schmancy spreadsheet.  You can use a sheet of blank paper.

  1. Write down all of your bills.  ALL of them.  
  2. Figure out your income.
    1. Our income changes weekly.  My husband is paid hourly but each week he works different hours.  Sometimes he's at 40 hours and sometimes he works 60 hours (bless his heart!).  For our budget, we always use the 40 hour check.  Anything that he makes OVER that, is extra for debt repayment.
    2. I am paid twice monthly from the school district.
  3. Once you have your bills and your income extremely defined, you are ready to start your budget.
  4. Decide how you want to work your budget.  We do weekly--because my husband is paid every Thursday.  If you get paid on the 15th and 30th, do twice monthly budgeting.  If you and your spouse are alternating, like us, then weekly may work for you.  
  5. At the top of our spread sheet, we list the pay dates for the month.  We (normally) have four columns, but this month, we have five due to the extra week in June.  After each date, write it your expected income.  Like I said, for us, we write down his 40 hour check.  
    1. For example, for our June budget, we would list:
      1. June 1-- $100 (not really, but let's pretend that he makes $100 for 40 hours)
      2. June 8-- $300 (this would be my two week check from the school + his 40 hour check)
      3. June 15-- $100 (his 40 hour check)
      4. June 22-- $300 (mine and his)
      5. June 29-- $100 (his)
    2. Now, let's say that on June 1, he got a check for 55 hours instead of the 40 that we budgeted, I would then edit my budget to show $150 instead of $100 like I initially budgeted.  That extra $50 would just go into savings (unless we were short somewhere and it needed to go somewhere).
  6. Now let's talk about bills.  Our budgeted bills are:  Rent, Mortgage (yes, we own a home but have renters in it, so it's basically a wash when the rent income comes in), Auto Payment (darned car!),  Electric, Gas, Trash, Medical Co-Pays, Internet/Cable and Auto Insurance.  Those are our household bills.  These are bills paid by check or auto payment via bill pay online.
  7. Then you figure in your debt repayments.  We have one two credit cards to repay (stupid student teaching!), a car loan (darned car!) and my student loan.  These are paid via check or online payment.
  8. And now you have to look at your household spending.  For us we have Groceries, Eating Out, Clothing, Gas, Entertainment, Babysitting, Office, Blow Money, Paper Goods, Personal Hygiene, and Car Maintenance.  These are paid in cash.
  9. You have to know how much you spend for each item.  The household bills are pretty easy, they come every month and usually are consistent.  If not, average high and go with that amount.
  10. Debt payments, use your minimum payments for the budget.
  11. The household spending categories are your envelope system.
Once you have all of those items listed and a $ amount assigned to each one, you are ready to budget.

You need to be mindful of your bill's due dates in order to schedule them appropriately with the pay check that is closest to the due dates.  You will need to shuffle the payments throughout the month between checks until you have every bill accounted for.  This will be the most difficult part of budgeting.  It took me about three months to get the hang of it, honestly.  But if you work it enough, it will work out.  

Now let's talk about the envelopes.  

The household spending categories that I named above in #8 are our envelopes.  These are cash expenses.  Things that you can walk in and use cash for.....NO MORE DEBIT CARDS!  Here is how we budget our envelopes.  We put a monthly total for each category.
Groceries:  $420 (we put in $105 a week)
Gas:  $400 ($100 a week, this came down from $600 while I was traveling to work)
Eating Out:  $95
Paper Goods (this is paper towels, cleaning products, baby wipes, etc.):  $50
Entertainment:  $50
Blow Money:  $80 ($40 each)
Babysitting:  $50
Clothes:  $50
Personal Hygiene:  $65 (hair cuts, waxing, make-up, etc)
Car Maintenance (oil changes mainly):  $25

We use the envelope system from Dave Ramsey and the course we took.  You can use standard white envelopes if you want, or baggies!  You don't need to get fancy.  But you do need to make sure that they are  travel-able.  Like, you need to take them with you.  Because, this is your spending money.  NO DEBIT CARDS.  You can even get an accordion style envelope and use that.  This is our system:

If you want to "make your own envelopes" you can here.

We started keeping a running total on the outside of the envelope but have moved away from that being necessary.  The key is, that when the money is gone, it's gone.  If you blow all of your eating out money on one dinner on June 3, then you don't eat out again until July.  End of story.  If you blow all of your grocery money, then it's cereal and milk till next pay day!  You have to be smart about your spending.  But by using this system, you KNOW what you have and what you don't.  And, paying cash for things is so much more personal!  It really makes you think twice when you throw that extra bag of chips in the cart.  That's like a $5 bill being handed away!  It's a lot different than a swipe of a debit/credit card.

In our six months of using envelopes, we have never gone hungry.  We have never had to call in to work because we didn't have gas.  Use your head and you'll be fine.  If you don't have cash for it, you don't buy it.  Period.

Putting gas in the car has been the only hardship that we've encountered using the envelopes.  Almost all pumps are pre-pay if you don't use a card.  So you do have to take your cash in before you pump.  Really not a big deal, unless you have a 2 year old in the backseat.  So I just make a point to send my hubby to get gas in the evening or I get it after he gets home.  Or we fill up on the weekend when we're together.  Our coach also said that you can take your monthly/weekly gas budget and buy a gas gift card for yourself and then just swipe that.  That's clever too.  But we have become accustomed to just pre-paying.  It really isn't a big deal.

So I've touched on building your budget and the envelope system.  I am so confused right I know that you must be too.  It's a lot harder than I expected to sit and type out all of this....  PLEASE, ask questions if something isn't clear or if you need more explanation.  Cause if you're like me, you won't get it at first, it will take a lot of work.  Let me be a good steward and help you.

The last thing that I want to touch on is micro-managing your savings account.  In January when we started with our coach, we had zero savings (aside from retirement accounts).  Now, we have a nice savings.  The first step is to establish your EMERGENCY FUND.  This is $1000.00 that is there for emergencies.  Not, I want a flat screen emergency, either.  More like, "oh no!  My car broke down and needs a new ______!"  I know nothing about cars, so fill in the blank.  Normally, that would be a super crisis.  For us it would be.  But not now, we have $1000.00 in our savings just for that emergency.  And thankfully, *knock on wood* we've not had an emergency, yet.

All of your extra money goes toward that emergency fund until it's funded.  We sold stuff on Craigslist, Ebay, etc. to build that $1000.00.  It wasn't easy and it didn't come quick.  Luckily, we started this system around tax refund time and that helped boost our emergency fund.

Once that is established, you begin building your savings account.  Here are our savings categories: Car Registration, Gifts, Christmas, Medical, Pet Care and Debt Repayment.  Let's break this apart.

Our savings account is one account.  But we use a spreadsheet to break down the balance into categories.  So the bank shows that we have XXX in our savings, but to us, we see it as  XX in car registration, XX in Gifts, XX in Christmas, etc.

After you have all of your household bills, debts scheduled and envelopes funded, you take the extra money and start allocating it into savings.  Even if it's $1 in each category, it will grow.

So car registration, we live in IL and unfortunately, it's not so cheap to buy your car tags.  Like $115 a year, per car, or something?  I don't even know.  And since this is a yearly expense, we have to budget for it.  So we took $115 and divided it up by 12 months and that tells us how much has to be saved monthly to have the money ready to go by the time it's due.  No panic what-so-ever!

Gifts:  This category is one you have to stay on top of because it changes monthly.  Our norm is $50 a month.  It builds, monthly, because sometimes you don't have to buy anyone anything!  But that's why it's in our savings account.  But the months when you have Father's Day, birthdays, etc. you need to put aside a little extra.  This month, we allocated $150 because of Father's Day and graduation gifts.  Make sense?  So it will sit in the savings until I spend it.  For gifts, I will use my debit card and then do an online transfer from savings to checking to cover it.

Christmas:  Christmas comes every year.  And every year, we act like it snuck up on us and we end up stressed and fighting over money.  Where will we get the money for gifts?!  Not this year.  Our Christmas category already has over $300 in it.  Not bad at all for June!  We put in whatever we can afford for the month.  Sometimes we put in $1 and sometimes we put in $200.  Just depends on how the money comes in that month.  If it's tight, don't put anything in Christmas.  This is where you have ultimate flex.

Medical:  This gets $50 a month.  This is for medical that isn't a co-pay, because remember, co-pays are included in our household bills.  With me seeing my shrink twice a month, and having a toddler, co-pays are a monthly expense.  Maybe they aren't for you.... But medical is for dentist expenses, contacts, glasses, deductibles, etc.  It grows until it's used.  Ours has about $300 in it now, but I have to buy my contacts so about $150 will be wiped out.  But see how I have no worries about ordering contacts now?  The money is there and it was painless to save it!

Pet Care:  Obvious.  Lucy's rabies vacc, etc.  We save $20 a month for this.

Debt Repayment:  This category is my favorite.  Now, let me back up for a minute.  You want your budget to balance to ZERO every month.  That means that EVERY dollar that you bring in, is allocated SOMEWHERE.  So when you get to the bottom line, you are at ZERO.  Make sense?  So when you have paid all of your household bills, all of your envelopes, all of your other savings categories, you take what's left and put it into the debt repayment column.  This column can grow and grow until you have enough to make a substantial payment on something.  There are some months that nothing goes into this column <insert Joy's sad face> but then there are times like now (with an extra pay week in June) that our whole check will go into this column because I've made all of our other bills fit in the other pay weeks.

Dave Ramsey suggests attacking your smallest debt first.  Even if it's not the highest interest.  You do that to help you gain momentum and feel like you've accomplished something.  When you get to cross off a debt, you feel like you can accomplish anything!  Trust me, we've crossed off three!

Here is our savings spreadsheet:
You can see the categories at the top in yellow.  There are several categories there that we currently aren't using, because well, we can't really fund a vacation until we pay off our debt.  Debt pay-off is king.   That is first and foremost.  And until you get to that point, you don't get to play.  You already played, that's why you have debt!  Right?  Well, except for student load debt....

Okay, exhale.

I'm sure that this is way overwhelming, and who knows if you even got through it all.

Like I said, please, please, please ask me questions.  I want to help!


Anonymous said...

New to your blog, but like what I see. :) Thanks for posting. This is a topic of conversation at our house currently. It's so helpful to hear from someone using this system successfully. Congrats on your progress... and Keep it up!

Christy said...

Hey! :) I made it - finally!

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