Monday, June 02, 2014

The Envelope System

Last week I saw a tweet from Jamie about the envelope system she and her husband use to budget. After a few more tweets, I was directed to this post by Victoria that broke it all down for me. I thought about it for a while, and that afternoon I started mapping out my finances a little bit and what the envelope system might look like for me.

I started with how much I make each month and subtracted some of my bills that are on auto-pay (car payment, car insurance, phone bill, etc.). The number I came up with was the number I used for my envelope system. Instead of going weekly with the envelopes, I'm just going based on my 2 pay checks each month. They're the same amount, so it was easy to designate dollar amounts to each envelope. The only hurdle I can imagine is that some pay periods are longer than others. We'll see how that works out. At first, I came up with 9 categories, but I later added 2 more (tags and vacation).

eating out
personal items

I used Victoria's categories as a jumping off point, but I spent some time going over how I spend my money month-to-month. This year, I've been using an Erin Condren Life Planner and it's been a godsend. Each month, I use the monthly page to track my purchases. I list where I spend my money with both a daily and weekly total. At the end of the month, I add up all my "necessities" and all my "extras". So I picked these nine envelopes to start with my trial run in June.

CAR - As Victoria explained, they put away enough money to stay on top of their regular oil changes and other car expenses. I think this is a category I'll need to reevaluate after using this system for a few months, but it's always nice to have some money set aside for a specific thing. Right now, I already need an oil change and a new set of windshield wipers for my car.

CHRISTMAS - Every year when Christmas rolls around, I always wish I had saved a small amount of money each pay check to create a cushion for the Christmas gifts I purchase at the end of the year. Too many people are stretched too thin around the holidays and I've been one of them for too long. For instance, even setting aside $10 a pay check (if you get paid twice a month) adds up to $240 by the end of the year, which is a nice place to start and you're really only giving up one lunch out or two trips to Starbucks.

CLOTHING - For lent, I gave up shopping and I did a pretty good job sticking to it. I haven't actually shopped much since Lent ended either and it feels good. I truly spent too much money on new clothes, focusing more on having the latest trends and fashions, rather than creating different looks from the pieces I've already own. I've done too many major closet clean outs recently and if you're getting rid of dozens of items and still have a full closet, it might be time to cut back.

EATING OUT - At this point in my life (I'm afraid to say), too much of my money goes to eating out. Ever since I discovered how amazing everything at Chick-Fil-A is, I stop there for lunch all too frequently. It doesn't help that it's smack dab in the middle of my commute from the office to home. But eating out lunch multiple times a week adds up quickly these days, and that doesn't include special dinners out or random outtings for froyo. Honestly, the amount I was spending at restaurants was the biggest motivator to create a budget and stick to it. The amount I designated for eating out each month is about 50% of what I had been spending. This envelope will definitely be the biggest test of my determination to stick with the budget.

ENTERTAINMENT - It shouldn't come as a surprise that I love going to movies. This is where that money is going to come from. Things like baseball games, concerts, and other activities of the sort will come from this envelope as well. Of course one month may be slower than another, so it will be good to "roll over" some of that money to use it on something with a bigger price tag that I really want to attend. Now I just have to decide if the popcorn at the movie theater will come from eating out or entertainment!

GAS - This is pretty self explanatory. I tracked how much I've been spending on gas in January through May and created kind of an average number to use in a month. I may have to adjust it, but we'll see. This one is going to be tough for me because I'm so used to swiping my card at the pump. When you pay cash, you give them a set amount beforehand and that's how much gas you're going to get. I like to fill my tank up completely, even if it's a random number like $49.67, and I won't know how much money will get me a full tank. The biggest problem I see with this is my gas light on my dashboard doesn't work and I usually go by how many miles I've driven on that tank (especially when it gets around E). I'm willing to test drive (HA!) the idea for June, but if I get stranded on the highway with no gas, I'm going to have to go back to using the card and maybe just being conscious of how much I'm driving to help stay around the budgeted amount instead.

GROCERIES - This is self explanatory as well.

PERSONAL ITEMS - This is going to be the money I use to purchase basically toiletry/sundry items. Usually I just toss them in the basket at the grocery store, so I haven't really kept track of how much I spend on those kinds of things and how frequently I purchase them. Also, I usually take advantage of the deals at Target on items like deodorant and tampons. Sometimes if you buy a certain number, you get a $5 gift card. Why not? Those things don't expire! So I may need to reevaluate this number as well, but we'll see how it goes for now.

SALON - I absolutely cannot stand to have my eyebrows plucked, I have to get them waxed. I get my eyebrows waxed once every four weeks and since my childhood friend just got a job at that salon, I've decided to actually start getting haircuts on a regular basis, every eight weeks. This one was actually a little tricky. I figured out I get my eyebrows waxed 13 times a year and I'll be getting a haircut 6.5 times a year. I took the amount I spend on each service (tip included) and multiplied it by how many times I pay for it to get a total number, then divided that by 12 to find out how much money I need to set aside each month. 

TAGS - I added tags after I spent some time thinking about Victoria's categories. I actually just paid for my car registration in May and while it wasn't a devastating amount, it was missed. The tags for my car right now allow me to set aside a very small amount per check that will add up and cover the cost when the time comes each year.

VACATION - This isn't meant to cover the cost of airfare or hotels. This is just going to help me collect some extra cash to spend for when I do go on vacation. I'm going to New York this summer and while I won't have built up a huge foundation of money by then, it will be nice to have just a small amount set aside to spend while I'm there. It's a lot easier for me to save than way rather than thinking "No, don't go to Starbucks today so that I can get a cupcake from a fancy NYC shop in a few months" or something along those lines. If I had been doing this all year, it would probably help me out significantly so I wouldn't blow a whole pay check on a few days of vacation.

I went to the bank after deciding on my 11 categories to get the cash. I know it won't be a hassle next time, but it definitely was this time. I swear I met a banker who couldn't do addition or count money. At home, I had indicated how much money I was putting in each envelope, then determined how many of each of the bills I would need. I made a note and then headed over to the bank. I told the teller I needed to withdraw X amount and then this is how I want the bills to break down. I'm not sure what caused the error, but she said "Okay, then a hundred?" I told her I didn't want a hundred dollar bill and if the math was off, I apologize, but I need this many $5's, this many $10's, this many $20's. That was the important thing. She got all flustered and confused before I just took out my phone and added everything up again to make sure the total amount was correct, which it was the first time. She had some difficulties counting the money as well since it has to be counted three times, but her supervisor came over and everything went smoothly after that. I know it's not going to be like this every time, it was just a strange occurrence.

I'm using June as a bit of a trial run. I know I need some sort of budget and I think this will be a good fit for me, but I'm a little nervous as well. Luckily, when I finished dividing the money up for the envelopes, I still had some left over, so I can make some changes next month if need be. I like Victoria's idea of over-budgeting rather than under-budgeting. I know myself and I know I would be really discouraged if I was spending "too much money" each month because I was setting unrealistic goals for myself. Jamie also suggested moving my debit card to a different place in my wallet as a reminder that I'm using cash now and not the card.

I truly think this will be a good change for me. Spending money via debit card makes it way too easy to spend money and harder to think about the value of what I'm buying. You just don't have as much of a grasp of that when you never actually see the money change hands. I'm already on day four and I consciously spent less money this weekend than I normally would. I made a trip to the grocery store and gas station after going to the bank on Friday and I went to the movies on Sunday, but I made sure to go when tickets were $5 and didn't stock up on junk food at the concession stand just because.

 My new kitten with my new wallet! (No idea why he's sleeping like that.)


  1. I love the envelope system! I get overwhelmed with too many categories, so I have just a few envelopes: groceries, personal, car maintenance/taxes, gifts, medical, and vacation. I actually use my debit card at the gas station because it's a pain going inside. What I found to be really helpful at the bank is to make a list ahead of time what I needed total and how many bill of each I need; it really saves time trying to explain it to the teller.