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!