What am I supposed to do with envelopes?

Okay, I’ve got to tell you about the envelope system as part of a money management toolkit. So what todo with these envelopes?

You have discretionary expenses that you need monthly, right?  Ones that you aren’t always the same amount, and you can’t auto deduct them from your checking account.

These are some of our typical envelope expenses.

  • Family Fun: We use this envelope for calendar adventures, entertainment, and eating out.
  • Date Night: Yes, please!  We try to have one date night per month; sometimes it’s dinner out, other times it’s a movie night and every few months we save up our date nights for a couple months and get out of dodge for a long weekend.
  • Kid Expenses:  Extracurricular activities for the kiddos fall into this envelope as well as ad hoc stuff that they need – school supplies, new socks, or a yearbook.  We also take chore chart commissions out of this envelope.  I’ll tell you more about that another time.
  • Pocket Cash:  We each keep cash in our wallets for whatever we fancy.  Drinks often – coffee for me, beer for him. ? Whenever we just need a little something.
  • Self-Care: This is often referred to as the “beauty budget”.  Hair care for him,  her and the kids.  (Hers is a lot more expensive than the others – so sometimes I have to carry over part of one month in order to cover a cut with a color.)  Beauty school fun like pedis and manis are covered here, and skin care needs, and also protein powder….because my husband doesn’t think that groceries should cover my proteins.  Fair enough.

And here’smore…

  • Clothing: It’s so easy to go over budget when you’re doing clothing shopping on a card.  Paying cash makes your budget clear and helps you decide if you really need it or not.  What if shop online?  No problem.  Take that cash from your clothing envelope and drop it back into your checking account.
  • Groceries:  Food, we all need it – this is a big part of our envelope budget.  This is also the envelope for us that runs out first.  We do a big shop at Costco the first part of the month followed by smaller weekly shops for produce and items we’ve run out of.  The last week of the month is often a version of the Food Network’s ‘Chopped’ with whatever is left over.
  • Gifts: Birthday party gifts for kiddos parties, a gift for your sister, a bouquet for your mother on Mother’s Day.  Sometimes we carry over month to month if we are light on birthdays, and maybe next year I’ll be a better planner – I know when all of my peep’s birthdays are, I could flex my budget monthly to have the right amount each month.
  • Charity Other: We keep about half of our charitable giving in an envelope to allow for the kids to help us decide what we’re going to spend on; the other half is in our checking account for the organizations that we give to on a recurring basis.  We often choose different charities, or keep ourselves open to what we see with a need as the month unfolds.

What shouldn’t go in your envelopes?

Utilities, mortgage or rent, insurance, charitable giving, car or credit card payments, etc.  The items that are already on auto pay – keep them that way, and keep these amounts ready for withdrawal date in your checking account.

How do you operate these envelopes?

Well, I’ve found two favorite ways.  You pick what works best for you – or maybe you have a combination of the two.

  1. Put cash in your envelopes. Take the amount of money you have budgeted for those discretionary items for this month, and put the cash in each envelope.  Take the cash out of each envelope as you pay for those items.  Stop spending the cash when you’re out of it. ?

Cash makes you think harder.  Do you want to spend your hard-earned dough on that item?  And you are really clear on how much you have at any given time.

  1. Make envelopes for each of your buckets of discretionary items for the month.  Write the total amount you have to spend on that bucket on the outside of the envelope.  Purchase as you need with your debit card and save your receipt.  Tuck that receipt into the envelope and write the new balance on the outside of the envelope.  Keep tabs that way throughout the month.

Converting to cash takes practice; this is a great way to get a handle on your discretionary spending if you aren’t ready to transition to cash.

Are you ready to give it a try?  Need a little encouragement?  Schedule a quick call with me – I’ll get you pointed in the right direction.

Sarah is a Ramsey Preferred Coach
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