Serving Bread

I don’t like to recommend any one system that organizes our finances. We all have different life situations and personalities that inform the best organizational system for our finances. The one thing I would recommend and advise is this: All of us need an organizational system of budgeting and finance.

A friend recently told me how he and his wife use the envelope system. When I first began budgeting my finances, the envelope system was a strong component of my budgeting. Over the years, the system has evolved for us, but for the most part, I still use a version of the envelope system.

With the envelope system, you make a trip to the bank on payday and withdraw in cash your budgetary needs for the month. You organize that cash into various envelopes that represent your expenses. For example, you may go on the first of the month and withdraw $1000 in cash. At home, you place $500 in an envelope marked, “Groceries.” You would put another $100 in an envelope marked, “Eating Out.” You might put $200 in an envelope marked “Giving.”

What this does is that it allows you to control your spending by keeping the ATM card at home. You’d be less tempted to spend your money without regard to your budget. When the cash in a particular envelope is empty, then you would have reached your limit for the month.

When I was using a stricter version of the envelope system, I had envelopes marked Car Insurance (I pay my insurance every six months), Car Maintenance, Giving, Groceries, and Allowance. I have evolved my version of the allowance system by using an online bank. Rather than keep the cash at home, I now make transfers from my checking into a higher-yield Savings Account and I use a spreadsheet to keep track of our various allocations. My envelope system has evolved to be primarily a long-term savings / planning system.

My on-line savings envelope system now consists of new categories, Property Tax, Christmas Gifts, Car Maintenance, Car Insurance, Vacation, and Clothing. Rather than write an even more detailed step-by-step instructions to implementing this system, check out Dave Ramsey and Debt Steps.

I like the values that the envelope system espouses. It helps us live within our means and gives us the discipline for long-term planning. Part of the reason why we are in an economic crisis is that we have inappropriately relied on credit to pay for our needs and wants. The envelope system helps us save and plan for them.