Thursday, January 15, 2009

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.

EnvelopeThe 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.


Miss M said...

I did a true cash envelope system years ago when I was unemployed. It worked OK then, but I hated it. I only spend money 1 or 2 days out of the week so once a week I open my budget spreadsheet and update it. That way I know how much I have left to spend. I admit I was $40 off this month, don't know where. You gotta do what works for you!

Ms. MoneyChat said...

oh i so understand! i always overspend whenever i deviate from my cash system.

Debtfree2009 said...

I am using the cash system. While it seems to work. I'm not sure I like it. I feel extremely restricted but that is probably a good thing because without using the cash system I had NO restrictions.

Sharon Rose said...

Hi there-Yes, holiday seasons make you think you 'deserve' to put your normal system on hold, unfortunately! January is the wake up call for us all! I must stick to my budget this year to get my 2 loans PIF, but it seems such a slog!

paranoidasteroid said...

No worries, the holidays do this to almost everyone. I did it with my finances (went over gift budget... I just felt so JOLLY), and with eating & drinking.

For me, that has always worked as a shocked to the system when I see the final numbers or the weight on the scale. It scares me straight!

MoneyMateKate said...

Oh, such fond memories of my grandmother's shoebox of envelopes in the back of the closet. My mom has a book I made her plus a shoebox filing system. It's been the same shoebox for at least 9 years now. I call it "retro-tech".

Shtinkykat said...

Miss M: For some reason, I lose track when I just update my spreadsheet. So you're right - do what works for you. :-D

Ms. MoneyChat and Debtfree2009: I wish I could be on a cash system but for some reason (read: impulse purchases), every time I carry cash, it disappears!

$haronRose: Wake up call? More like a slap in the face! LOL. Oh, I know you can PIF those 2 loans!

ParanoidAsteroid: What is it about holidays that make us overindulge? Sheesh!

MMK: Oh yes. I'm TOTALLY old school!

jpkittie said...

That is too funny - I was like that last year after doing my cash envelopes for groceries for a few months - I was like, I can do this - then I went from $60 a week to around $100 --- but dummy that I was... went a few months doing that instead of seeing the problem right away! I am stronger now ;) lol I know that I just have to keep it going - probably Forever if I am smart!!!!

Good Luck!!!