Cash/Envelope System

[rfs13]

Hello MMers

Looking for a little advice on how to commence using an envelope system. We are entirely too dependent on whipping out our credit/debit cards for purchases and I think actually forking over the cash for things will help reign us in. We are by no means frivolous but have fallen on some tough times over the past two years and are slowly trying to dig ourselves out.

I guess I'm a bit confused on how to go about it. Since we are paid on a bi-weekly basis....how do you divide it all up? Ideally I would love to have our cash in envelopes at the beginning of the month; is that what I'm supposed to do? Or because of the bi-weekly paychecks - do I essentially do envelopes for two weeks and then refill for the next two?

I'm sorry if this sounds stupid -- this whole thing is rather overwhelming to me and I just want to get some sort of system in place so that I can feel a little less stressed.

Thanks.

[ddi741]

Trying not to ThreadJack but when you switched over to cash from credit, did you do it in stages?
If we said Jan 1 we wanted to start using cash we couldn't because we' d have to pay off the previous months CC with the cash we get in Jan.
We always pay our cards on time but I like the idea of the cash system so we could put more in savings or atleast be more aware.

Just curious about how you did it.

[rfs13]

good point! That's where I'm getting confused too....about the whole I need the money from November to pay the October stuff. I'm thinking since there are 3 pay periods this month for us, it might give us the flexibility to make the change now.

[pamela]

It depends on what reserves you have to start with. You may need to do an every 2 weeks envelope refill. But don't think of it as a bad thing because it will help you reign in spending at first. It can be extra hard to learn how think an entire month (or 4 weeks) at a time and feel like you have plenty of money at the beginning and run out quick.

If you need money from Nov to pay October, you're officially in debt. I think the best way to tackle that is to consider that the CC may not get paid off in full if you don't have the extra leeway in the budget. In your budget, allocate what you can to paying off that CC debt. Don't think of it as October, think of it just like any of your other debts. Then start fresh with month to month expenses. Since we're already halfway into Nov, it may make more sense to start fresh in December.

Also, I didn't always start my monthly budget right on the first of the month. Depending on when paychecks fall, I may start one month early or late so that I have a paycheck to start the month. That means some months are shorter or longer than others, but if it was a short month, I'd roll the extra into the next month to balance out.

You'll figure it out once you get into it. It sounds complicated just trying to talk it out, but it really becomes concrete once you start working it.

[gibbinator]

It's easiest to go by a weekly schedule. So say every Monday you head to the bank and refill the envelopes.

To come up with a reasonable budget, go over your cc and debit card statements the last 2-3 months and find out what you've been spending on variable expenses such as transportation, groceries, pets, joint and individual entertainment, etc and determine what a realistic budget for those categories could be.

Take your biweekly income and subtract all fixed expenses that will come from that cheque. If you pay your bills monthly rather than biweekly, do the math to figure out what portion of said bill will come from each paycheck. Your net income minus the amount for fixed expenses is what goes in the envelopes.

Try not to undershoot or overshoot each category as the former will be frustrating, and the latter won't help you reach your goals.

Finally, what to do with the remainder each week? If you have debt, you could make extra lump payments. If you don't havemuch of an efund, beef that up. If you're more or less ok, you could save the remainder as a reward for a nice date or other fun family activity you couldn't normally afford.