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The Cash Envelope System – The Benefits of Using Cash

Using cash rather than your debt card or checkbook can save you money if you do it correctly. It can also keep you from acquiring overdraft fees. Recently my husband and I made a banking mistake because we didn’t use the cash system. If we had been using the cash envelope system like we had been doing in previous months this mistake could have been prevented.

The banking mistake we made cost us $136 ($34 was removed after I called a begged for a break) in overdraft fees. The six transactions made were all things that could have been allocated to the cash envelope. I vowed for this type of mistake never to happen again the last time it happen so I really upset about it. The last thing we needed was to fork over $106 to overdraft fees. So once again we need to refocus and reevaluate our priorities.

Keeping track of our finances properly needs to be a priority. The cash envelope system works very well when we actually use it. The cash envelope system is easy and but it does require self discipline. Dave Ramsey offers a very cool cash flow wallet with some of the package deals but if you don’t want or can’t afford to buy a wallet then you can make your own system.

How to Use the Cash Envelope System

Supplies Needed

Large Envelopes (No. 10 or larger), One for each category. You also might want to get one large manila envelope to keep all your cash envelopes in.
Pencil and Pen
Cash

The first thing you are going to need to do is decide what you are going to pay cash for. Dave Ramsey recommends using cash for the following categories;

Food (all food purchases, including fast food)
gasoline and oil
car repairs
clothing
cleaning/laundry
baby-sitter
toiletries
cosmetics
hair care
entertainment
blow money (money you know you are going to spend that doesn’t have a designated category).

Some of these items can be combined with other categories. For example, cosmetics and hair care can be combined. You can probably get away with using 6 envelopes but if you need more that’s fine too.

The basic idea of the envelope system is very simple. You deposit and withdraw money into your envelope just as you would into your bank account. You must keep track of the cash flow otherwise the envelope system will not work properly. The ledger can look something like what I have below. The cash envelope system offered by Dave Ramsey uses the same format.

Date Where $<> Balance

1/20 Paycheck $100 $100

1/21 Grocery <25 > $75

1/22 Fast Food <10> $65
In order for the envelope system to work you need to be using a budget that determines how much money goes into each category. The allocated spending sheet offered by Dave Ramsey is a very good way to keep track of weekly spending. Not everyone gets paid the same way so the allocated spending sheet allows you to customize your budgeting. For example, if you got paid once a month you could allocate monies to different categories at the start of the pay period. If your paychecks come in weekly or bi-weekly you may need to split your monthly budgeted money for each category differently for each week.

Let say I have budgeted $400 for the month for the “Food” category, but our paychecks come in weekly. I would use the allocated spending sheet to determine how much of our weekly paycheck will go to the food category. I might choose to allocate $100 each week or maybe $100 in week one, $125 in week two, $75 in week 3, and $100 in week four. The reason I might choose to do the latter is because one week a large bill (like the rent or mortgage payment) might be due the week that I have opted to spend $75 on food. Each category will need this kind of attention for the envelope system to work best.

What happens to many people who try a budget and fail is the failure to properly manage the budget. It does take some work but once you have the first three months budgeted it does get a lot easier. I highly recommend using the allocated spending sheet, especially if you are just getting started with a budget. The spending sheet helps you to break down your spending into manageable portions.

If you are like I was when I first started using a budget, the thought of using more than one form is overwhelming but what I found is that the second form really helped me keep on track.

January 25, 2008 | Filed Under Budgeting, Financial Peace Baby Steps, Financial Planning | 2 Comments

Again With The Mistakes – Financial Blues

It’s really not easy having to take care of your finances when there are so many other things to think about. Though this time it wasn’t my mistake it is still hard to deal with the fact that a mistake has been made. This mistake will again cost us money we don’t have.

I am so sick of wasting money because of mistakes. This journey is not easy and each time I think we are taking steps forward something happens and we end up behind again. It is very difficult to stay motivated sometimes. So here I go with yet another pep talk for myself and maybe someone else out there dealing with the same time of issues.

Don’t give up. Mistakes are going to happen and you can’t let them keep you from moving forward. Stick to your goal of becoming financial free and don’t let your doubts get in your way. Over time things will improve if you keep focussed.

January 23, 2008 | Filed Under Dave Ramsey Financial Freedom, Financial Freedom Journey Pep Talk | Leave a Comment

Some Options For Getting Out Of Debt Fast

As I have mentioned on this blog before, I believe the best way to get out of debt is to stop borrowing money. We can’t expect to change the way we handle our money if our attitude towards money hasn’t not changed. Debt will hold you back and not allow you to gain true financial freedom. If you are at a point that you know you are never going to get into debt again (with the exception of buying a house you can afford on a 15 year mortgage) then there are some options for paying down debt fast.

My first suggestion would be to use Dave Ramsey’s debt snowball but if that is not something you want to consider then there are a few other options.

I had a negative view of debt management companies until a friend of mine explained why she decided to use the services one a company. She and her husband were at the point of never returning to acquiring more debt. They had been months behind in bills and could not longer stand the stressful calls from the credit card companies trying to ask for money they did not have. They decided to use a debt management company and do have to pay a small monthly fee for this service.

Using this service does mean that there credit is no longer good and it will be a long time before it will be repaired. Since there mindset about going into debt has changed the need for a good credit score is no longer necessary. It is true that they may want to buy a house (on a 15 year mortgage) some time down the road and may run into problems with credit but they understand that poor money management may delay this option.

Though some financial counselors will tell you not to go through a debt management service, I do think it’s important for each person to make a decision that is best for there family. The key to this story is that my friend and her husband have made a discussion to not go back into debt. I think may people file for bankruptcy, do a debt consolidation, a IVA, or seek debt management thinking it will be a quick fix and they vow “never to do it again” but then the second their credit is good again they go right out and borrow more money. Does that sound familiar? If you do plan to use seek help for debt management do it only if you are truly serious about getting out of debt and staying that way.

If you are looking for more information on debt management visit MoneySolve. They offer an ethical approach to debt management. If you live in the England, Wales or North Ireland you may also qualify for an IVA ( Individual Voluntary Arrangement) through MoneySolve. MoneySolve is based in Handforth near Manchester in the UK.

January 17, 2008 | Filed Under Debt Help, Sponsored Reviews | Leave a Comment

I Just Don’t Have Enough Time and I Stress About Finances

If there were 48 hrs in a day would I have more time? Have you ever wondered if you had more time, would it feel like you had more time? Would 48 hours in a day feel like 24 hours because you would just fill up the day with more things to do?

Lately I have been feeling like I just don’t have enough time. I am a mom of 3 children, I am responsible for taking care of the house, the finances, the animals, the kids schooling (I home school my kids), planning and cooking meals, part-time work and this list goes on. Now some my responsibilities could be reduced if I would get rid of some things, like the animals. Despite the work I have to do with the animals I do enjoy having them.

I am not trying to sound whinny or be ungreatful for what I have but I just get overwhelmed sometimes. My finances overwhelm me all the time. Though I feel we are doing much better with our finances years past, I do have to constantly remind myself to stay on track. I have to remember to look ahead and not dwell on things that are happening to us now.

I think all of this will turn out to be a blessing in the end. The day I can call into the Dave Ramsey show and yell “We’re debt free” will remind me that all this hard work was worth it. My hope is that one day I will be able to write on this blog from the other side of the financial freedom fence. I hope that I will be able to encourage all those struggling with their finances to hang in there because there is light at the end of the tunnel.

January 14, 2008 | Filed Under Financial Freedom Journey Pep Talk | 2 Comments

Budgeting Works!

To gain financial freedom you must take control of your money, plan for the future and Stop Borrowing Money!
Two families striving to gain financial freedom share their experiences.
Blog Author Mona Weathers (monawea)

Co-author, Manda C.
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