Reinstating My Envelope System

I just tallied up my December spending and… HOLY [bleeping] CANOLI! My total expenditure in December was $3,153.91! (Note: This was not totally due to my personal spending. A lot of this included business expenses for which I’ve mostly been reimbursed.)

I thought I had everything accounted for, but I obviously didn’t, since I’m short $98.27 in what I’ve set aside to pay for my December expenses.

For most of last year, I kept track of my spending using a modified envelope budgeting system which worked extremely well. But I got really cocky and fell off the wagon in November. {Sigh} This is what I get for my hubris. I guess it’s time to reinstate my modified envelope system again.

The basic concept of the envelope system is to keep a pre-established amount of cash in an envelope to pay a certain category of expense for that month. Once the cash is spent, there is no more money available for that expense item until the following month. (Dave Ramsey is one of many advocates of the envelope method. His method can be found here.)

I normally pay for irregular expenses (i.e., monthly expenses that differ month-to-month, like groceries, food, gas, toiletries, incidentals) with my credit card. So I tailored the envelope system to suit my needs – my envelopes don’t hold cash, but receipts.

I have a monthly budget of $500 to pay for irregular expenses. When gas was $4.50/gallon last summer, I set aside $130 of my budget to pay for gas. I also set aside $100 as a "cushion". If I had any of my "cushion" money left over at the end of the month, I earmarked it in my savings to pay for other future expenses. That left me with $270/month (or, $8.70/day) for groceries, food, toiletries and incidentals.

On one side of the envelope, I keep a day-to-day tally of my expenditures. On the other side, I keep a day-to-day tally of my "accrued" budget. For example, on the 5th day of the month, I would write down the accrued budget amount on one side of the envelope: e.g., $43.50 = $8.70 x 5. If I flipped the envelope and saw that I’d already spent $50, I'd immediately know I was $6.50 over-budget.

This method worked well for me since it kept all of my receipts in one location and it also made me aware of how much I was spending.

In hindsight, it was extremely stupid of me to fall out of the envelope system during the holiday season. Now I know I can’t manage without it.