...because we all have our motley moments!

Tuesday, March 16, 2010

Financial Fun Part 2: Cash on the Barrel and the Saving Game

Since we were married, my husband and I have tried different methods of spending for our household. For a while, we put all of our purchases on our Discover Card and then we paid our bill at the end of each month. In theory, it's a fine idea, but we have a little problem--we don't mind spending money if we can't see it disappearing. Our credit card bills climbed each month as we threw lunches with the office and cupcake sprinkles onto our plastic, and we finally decided that we just couldn't go on that way and expect to achieve our financial goals.

So, our solution is a cash budget for our monthly spending. We were, as always, inspired by Dave Ramsey's envelope system, but over time we have personalized it to fit our family. The following document shows the categories of our envelopes, and they are taken directly from our MASP:

Our Envelope System

This is what I did:

1. I created the system using a coupon organizer, envelopes from the bank, and some paper clips. Each envelope is labeled with an item from the MASP.

2. I arrange the envelopes into sections that make sense to me, and that is not always how they are organized on the MASP. For example, in my organizer I put our Sunday School offering and church dinner money into the same section because they are both paid at church.

3. Each month after I have set the monthly spending plan I total the amount of cash I need (Excel does this for me nicely) and write myself a check for the exact amount.

4. (This is where I may lose some of you, but I promise this is not hard at all.) I make a list of the bills I need. For a category that needs $35, I write down 1-$20, 1-$10, 1-$5. I do this for each category and then tally the amount of each bill at the end. I give this list to the teller when I cash my check. (I have cashed my check both inside the bank and out, and they have NEVER said a word about my list, by the way. When I asked them, they said lots of people do it.) All in all, if you can count money, this step will take about five minutes.

4b. I actually organize each folder by bills. Our grocery budget is $50 per week (not a typo, by the way) and I include $100 for "stocking up" on good deals along the way. I have one $50 bill for each week, and I keep the "stocking up" money paper-clipped together in the same envelope so that it doesn't get confused.

5. Each envelope is sacred and used ONLY for it's intended purpose. If I run out of gardening money, too bad. I will have to budget more wisely next month. Also, once the money is gone it is gone for the month. We do not allow extra purchases to be charged.

**Just a note, we don't use the cash system to pay for gas. It's too hard with a little one in the car, so we pay at the pump with our debit card.

Now, these are the little games I play to save more money:

1. I don't spend change. If I receive coins as change after a purchase I keep them separate from the envelopes and put them in a jar when I get home. Each month we roll our coins and deposit them into savings.

2. I taped an envelope to the door on our computer desk and labeled it "Extra Savings." Until January each month I paid for a cardio kickboxing class. Because of childcare issues I can no longer go to this class, but because we were doing fine spending the money I decided to keep it in the budget. When I fill my envelopes each month I just put that money into the savings envelope in order to entice me to save even more.

3. Each week, if I don't spend the entire amount allotted for groceries I put the leftover bills in the savings envelope. I do this for everything except the clothing category because I consider that to be more of a savings envelope for those purchases. This practice unleashes the competitive spirit in me, and by the end of the month I have managed to save about $100-$200 above our initial savings deposit.

Many financial experts agree that the best way to build wealth is to spend less than you make. Even though I don't bring a formal salary into our household, I can still see our emergency fund filling each month thanks, in part, to my vigilance over the cash budget. It's exciting!

What works for you? Any questions, comments? Let's keep the financial conversation going so we can all win!

Next week, let's save money at the grocery store without clipping coupons!


Donna said...

This is great, Rachel. It's good to see that you have been able to modify the cash plan to better work for you. I have to pay at the pump for gas as well, so that's an obvious debit use, but I'm having a hard time convincing Paul why I need to walk around with cash for groceries. He seems to feel that if I just stick to a predetermined budget amount, the debit card works fine and it is automatically posted to that spending category in our online banking budget. He's willing to give the cash system a try, though (well, for ME to give the cash system a try), so I guess I just have to discover if this system has value for us.
Thanks for another great, revealing post about family finance. This is helping me tremendously! :)

Bryssy said...

I used an envelope system for about 14 months and really helped train me to stick to my budget. Like I said on your last finance post, we use an AmEx card that pays us back now. But, still the limits apply. We save every receipt and it goes into the tally for our MASP. When we reach the allotted amount - spending for that month is over. I update the MASP every Sunday evening and RM and I review where our totals are for the month.

One thing that I do that really does help I save money, is that I don't shop for fun and I always use (and stick to) my list. Most of our clothing and toy purchases come from yard sales, which is a part of our MASP. Some months I don't sale at all, other months I do. I always have a list of things I am looking for and know what price is a good deal.

For instance, knowing I needed 2 twin mattresses - I shopped prices on new mattresses. I cheapest I found for brand new was a sale for $100 each. When they were at the Celebration sale for $50 for both - I knew it was a good deal (although they were used but still in great condition). Then I bartered them down to $30 for both. I do the same for books, games, and toys that I am looking for. I also know the going rates (because I yard sale often) of items like bikes $5 ($8-10 if they have training wheels) etc.

Any extra income we have (money from my part-time job, refunds, rebates, travel reimbursement, etc) goes immediately into savings. All coupons over $1, I save and take to the service counter and get cash for - and it goes into savings. Our change, too, gets collected - divided (KOTJ gets the pennies for his piggy bank, THE Princess gets nickels for hers)dimes and quarters go to our vacation fund. Any golden dollars are saved for the tooth fairy. :-)

I can't wait to find out more tips and tricks from everyone! I love seeing the total on our savings go up and up. I really don't like seeing it go back down when something needs replaced or fixed, but it feels good not having to worry about where the money will come from.

Liz said...

We've been trying the envelope system for 2 weeks now and it's hard! For instance, I've already gone over the grocery budget for 2 weeks (my husband is paid bi-weekly, so it's easier for us to do envelopes for 2 weeks instead of a whole month). We prepared a budget, but underestimated a few items (groceries maybe?) and forget a couple others. I am sure that we will get organized and do better next month, though. It has to be better than our last system, which was put everything on the credit card and pay it off at the end of the month. Like you, Rachel, we spent much more freely when we couldn't see the cash flowing out of our hands. And Bryssy, we used the AmEx Blue, too, but the cash we got back at the end of the year just went toward paying the December bill, so it didn't seem to really be paying off. I think this month we're just learning a lot about how we spend and what's really important to us. I'm sure using a budget and cash will work better in the future!

Bryssy said...

Liz, I record every purchase with our AmEx into our MASP and our checkbook register. So, in my mind - it's gone. When the bill comes I reconcile it and pay it off. Between our savings account and our AmEx we bank $1500-$2000 a year. But, I couldn't do it now without having used the cash system before that.

Liz said...

We did that, too, Bryssy, the balance just ran red every month! I think we would do better if we did the envelope system for a while like you did.

Rachel said...

What a great conversation! In line with what I'm hearing from everyone is that I think the most important thing the cash system has done for us is that it has helped us to tame our shopping tendencies. I now go into a store for something specific instead of "just browsing" and leaving with a cart full of stuff we didn't really need. (Case in point, check out my shelf-o-sprinkles the next time you stop by our house. It's a monument to frivolity!)

Liz, we started using cash in September, and I am just now feeling like we've got it down well enough that I can post about it, so don't lose heart. Every month it gets easier!

Bryssy, I am, as always, in awe of your ability to get a deal. You are my hero! ;)

Donna, probably the most important thing is that you and Paul agree completely about how to handle your money. I look forward to hearing how you decide to do things!

Rachel said...

Oh, and Bryssy, the coupon for cash idea is a great one that many people probably aren't aware they can do. Sometimes if I forget to give a coupon to the cashier I take it customer service--usually they don't even look at the receipt! I guess they figure they've sold that product to somebody sometime so it doesn't really matter! ;)

Teresa said...

Impressive Rachel! We are on a pretty strict budget, but have not switched to the envelope system yet. I guess what is holding me back is our bank. We don't bank locally, so I don't know how I would easily get the cash each month!

One question....do you give John money from your envelope when he needs to buy something or does he have his own envelopes?

Thanks for all of your great tips and advice!

Rachel said...

Teresa, John has his own envelopes for planned spending, like his haircut each month, and then when he needs extra cash he lets me know and we take it out of the appropriate envelope. His job doesn't really require a lot of spending, and he takes his lunch most days, so most of his spending happens when we're together anyway. Thanks for your comments! :)

Lindsay said...

We've been using cash envelopes for about 2 years. We have a envelope for groceries (which includes paper products, cleaning supplies....really anything you can buy at publix/walmart), eatting out (we eat out after church on Sunday every week), gas (we go at night when we don't have the kids), clothing, dance lessons, gifts, and entertainment. Tithe gets paid online, or via a check (the money is set aside we just don't give cash). It took about 6 months to get it worked out, and every 2-3 months we review and adjust but it's pretty much been the same for 2 yrs now.

Bryssy said...

Personally Rachel, I love your shelf-o-sprinkles! It's awesome! Plus, I always know who to call if I need a certain kind of sprinkle!

Rachel said...

It is a happy little shelf, isn't it? :)

Donna said...

I say after-holiday clearanced sprinkle-buying is the way to go...if you're willing to store them for a year. ;) Sprinkles are good! It's just one of those expenses that you think "What's the big deal...it's only a couple bucks and they make me happy!" But then you are depending on something storebought for that little happy moment. Not so good. And you have a shelf full of sprinkles (or t-shirts, or scarf belts, or purses and bags ;) that you probably could have done without and lined your piggy bank with $50+. I'm learning to examine my motives before I head to the store. We just don't need more "stuff" cluttering our lives. I'm all about simplicity these days!

Rachel said...

Me, too, Donna--I have really had to tame my shopping tendencies by taking a hard look at why I want to buy something. I could easily be one of those talk show guests with a hoarding problem, though mine would probably be pretty unique as I would be the baking supply hoarder. Hmmmm...what WOULD it be like to be surrounded by pretty sprinkles? ;)

Liz said...

Sounds kinky.

Bryssy said...

I love how this conversation has gone down hill!

Liz said...

I'm sorry - I spent a great deal of time on www.textsfromlastnight.com last night and my mind is having a hard time getting out of the gutter.

Jenni said...

The envelope system is what we based our financial system off too. But instead of envelopes I opened checking accounts.

We opened a 'auto pay' checking account and all our regular bills are taken with bill pay from this account. Each pay check I allot an amount to go to this account. Anything extra stays here and is saved.

Then I opened an account for daily expenes. We use our debit cards like mad...so this work well for groceries, gas, extra stuff etc.

We have one savings account for house and home projects (we bought a historic home so we always have lots to do)

And another savings for other big ticket items we want to save up for.

The end...
thanks for sharing.