Thursday, January 20, 2011

Cash Envelopes and Financial Peace

Our church is starting Dave Ramsey's Financial Peace University. While we don't have any debt other than our mortgage right now (although I am sure we will accumulate some medical debt with the baby), I think it will be good to go through it and get more saving and investment ideas.  Have you ever taken the classes?

You probably know that a big part of Dave's system is using cash envelopes. I definitely like the idea behind cash envelopes--giving every category a budgeted amount and staying within that amount. But for us, the problem we've ran into in the past is it's not always practical.

For example, let's say you're at the grocery store (a big one like Walmart--wink), and you happen to pass by a really great kids' clothes' clearance: a dollar for shirts and a few dollars for pants. This is a great deal, and you can stock up on sizes the kids will need for next fall, but you only have your grocery envelope with you, because you didn't know you would need to take your clothing envelope with you. So do you use the grocery money for the clothes and put clothing money in the grocery envelope when you get home?

Or let's say you go to the park with a friend. Afterwards, she suggests taking the kids out to lunch at somewhere like the Pizza Hut lunch buffet. But you didn't anticipate this, so you don't have your recreation envelope with you. Do you just go ahead and use your debit card and try to line everything up later?

It's situations like these that caused my husband and I to decide that, for us, it was just easier and more practical to use one big cash envelope for everything. No more accounting headaches or unpredictable situations where you don't have the right envelope. There's just one envelope with grocery money plus gas money and spending money inside.

As we go through the classes, we may go back to the old cash envelope system, just to give it another try. Plus, I think the envelope system included in the Financial Peace kit is more like a wallet, with all the categories included inside. That would definitely make it easier to stay on track.

I'd love to talk about emergency funds, too, but let's save that for another time!

So this Coffee Talk Thursday, let's talk about it! Do you use a cash envelope system? Do you love it or also find it can be problematic? How do you make it work for you?

(linked to Works for Me Wednesday)


  1. there is a wallet designed with many sections specifically for the cash envelope system. The HOmespun Heart had a giveaway for it in November (I think).

  2. We had the same problem and decided to keep a 'float' in our wallets. We each carried a $50 bill (a large denomination so that we weren't tempted to use it up on items that weren't in the budget at all). That way if I was shopping for groceries and saw the clothing deal, I would use the $50 and take the money out of the clothing envelope when I got home. Or if I forgot to bring gas money but needed gas in the car I would take it out of the $50 and then replace the float when I got home.

    That way we didn't end up with one envelope owing another or more than one it was just between that item and our float.

  3. We don't deal with cash. Everything goes on a debit or credit card and we pay the credit card off each month. Each transaction we do goes into our Quicken software so we can run reports on how well we're meeting our budget. I like it because I can overspend on good deals (like you mentioned in your post) and I have a paper trail with the bank and credit card company. I can see using envelopes if you have a very strict budget and don't pay off your credit cards, but we're lucky enough not to be in that situation right now.

    I've never taken Dave Ramsey's classes, but our church offered Managing Our Finances - God's Way through Rick Warren's Purpose Driven ministries and thought it was excellent.

  4. I just don't think hubby would get on board with the envelopes! :(

  5. We are also a very electronic family. We use our debit card and credit card for everything. We also pay the credit card off each month and make about 300 cash a year with the cash back! I would love to figure out a way to do the "envelope system" electronically. Right now I track our spending 2 times a month via an excel spreadsheet. I do a fake envelope system with annual and bi annual payments such as car insurance (which can save you money vs paying monthly).
    We have a small amount of debt due to out of state move, job loss and 3 babies in 3 years, but we are working on paying it off. If anyone has a great electronic tracking system or budget software that is easy to use I would love to know about it.
    We have found being financially responsible has allowed us to bless others.

  6. I just joined and am loving it. It reads what you spend from your bank debit and credit cards and put them into catorgies like food utilities and so on. So I guess you could say like an electronic envelope. I can also check it on my android. Love it!

  7. We have been on Dave Ramsey's program for four months now. At first it was a hard sell for my husband because of the cash envelopes but now that we're doing it he absolutely loves it. Since we each get a cash allowance each month, I always have that money to use for good deals I find and then I replace the money from the appropriate envelope when I get home. I think what Dave says about cash is ABSOLUTELY TRUE--you actually FEEL different using cash than you do using a debit or credit card. We used to use a credit card for everything (for the rewards points) and paid it off every month but no matter how well I tried to keep track, we always spent more than we intended. The same is true with the debit card. We have managed to pay down our debt (a HELOC) by an incredible amount in just these four months. I estimate we will be completely finished with it in just under 18 months.

  8. My husband and I took FPU a little over 3 years ago. We've been doing the envelope system ever since. I keep all of my envelopes with me at all times. I have a small divider (looks like a portable filing cabinet :) in my purse so if I see something I wasn't anticipating on buying then I can make a different transaction and buy it out of the appropriate envelope.

    That's what works for us. You have to find what works for you.

  9. I'm a big Target shopper, so I understand what you're talking about relative to multicategory purchases. We do the one-envelope system too. I like to categorize receipts to track spending so I do multiple transactions at the register by type (food, household, clothing, etc.)

  10. We love DR and live by his teaching but I've also found the envelope system to be tricky, especially if I have to pay for 3 separate items at checkout. It's not a way to make friends. It's also a pain to fund the envelopes at the bank with one big withdrawal. It's worth it though, I may try that one big envelope plan!

  11. Well, I would just carry ALL of the envelopes all the time. But if I divide things up then I can't figure out what to do when I get to the checkout at Wal-Mart or someplace where I'm buying, for instance, clothes and groceries and gifts.

  12. Good for you!! Hubby and I facilitate a FPU class at our church!