Envelope Budgeting System Question

[danielletg1974]

Hi!

I have a question about this. I read somewhere that some people cash out their entire paychecks and I thought this was a little strange, I have three bills I pay 2 of them I pay on the 22nd of the month and 1 of them I pay 2 times a month and the bills equal $253 and I wonder do I take out the rest of the money to make the Envelope Budget? or I take out so much leaving some in the Checking out? Because sometimes one one of the bills comes before a paycheck comes and I dont want to take everything out and have a problem with overdraft.


Danielle

[gt0163c]

I'm assuming you're meaning Dave Ramsey's envelope system. I'm familiar with it but do not use it myself. (end of disclaimer)

The envelope system works best for discressionary expenses and those you have a reasonable amount of control over. Things like entertainment, groceries, gasoline, etc. These are things that you can decide (to some extent) whether you're going to spend the money or not, or what you're going to spend the money on.

For fixed bills, I don't see a lot of benefit to using the envelope system. You know you have to pay these bills each month at a set time. If you put them in your budget and leave the money in your checking account, the money will be there and you're good to go (especially important if you have the bills automatically paid from your checking account).

For any financial system, I think you're best off being flexible and doing what works for you. I have a coworker who has tweaked Ramsey's system and will be paying of over $12,000 in debt in the course of about a year. I know a number of other people who are strick adherents to Ramsey's system and it's made a huge, positive impact in their lives. But, for me, I have to be careful about any system that puts too much emphasis on the strict tracking of expenses, as that causes me to obsess over small amounts of money and can get me into money idol issues very easily. (But, I'm also in good financial shape and live well below my means, so I'm able to deal with my particular money issues differently).

[Philip Brewer]

The win of the envelope system is that it makes your financial position in each category highly visible. There's no confusion about how much money you have to spend for eating out, because what you have is right there in the envelope.

It's also good for occasional expenses where you need to build up some cash: Budget $50 a month for your big summer party; when summer rolls around you've got enough in the envelope to pay for the whole thing. It works almost as well for expenses that you know you'll have but can't plan for--car repairs, vet bills, etc.

It's not so useful for your regular expenses that are the same every month--rent, cable, etc. And it's not particularly useful for your regular expenses that are almost the same every month. If you put $49 a month into the envelope for your power bill, what do you do if there's a hot month and the bill comes to $52? It's too late to go back and use less power, so you've lost the big win (which is that making the amount that's available to spend visible helps you control your spending).

After initially liking the envelope system, I eventually came around to the idea that, rather than thinking of my budget as a set of individual pools of money, it was better to think of it as a plan.

I wrote a bit about the difference in Your budget: envelopes or a plan.

[danielletg1974]

My catorgories are Entertainment Groceries, Dining, Xtra Cash, Clothing, Gas, Everything else like rent, credit cards and my Roth Ira will come out of my Bank automaticlly.

[flipchick1127]

As a twist to the traditional budget system, you can simply have envelopes that are empty at the beginning of the month. Then, every time you make a purchase in that category, you can put your receipt in that envelope and write down the value on the envelope itself. You still set limits to each envelope, but you don't have to cash your paycheck.

[moneymatters]

for our envelope system we don't take out all the money, only cash for certain categories including eating out, entertainment, blow money, groceries.

Once the money is gone ,its gone. Other fixed expenses like mortgage, utilities, etc still get paid directly from checking.