The Envelope System: How we do it and Why

If you've read any of Dave Ramsey's books or been to one of his courses, you should have heard about the envelope system. The envelope system is basically taking out in cash what you have budgeted to spend in certain categories and spending only out of the envelope.

Here are the top 5 reason why it works for us and how you can implement this in your household too!

1. It makes doing the budget a lot easier
• Typing endless receipts from the grocery store, restaurants, and the mall can be seriously annoying and time consuming. When we take out all our cash at the beginning of the month, I only do one budget entry and I'm done!
2. It's a lot more secure to spend cash
• We all know that our information is under attack all the time by identity thieves. Using cash is another way of protecting ourselves from this (remember Target & Home Depot credit card breaches?). Using cash means we don't have a huge list of where we shop in our bank account and the stores do no have our debit card numbers.
3. Significantly less is spent when using cash
• "A study of credit card use at McDonald’s found that people spent 47% more when using credit instead of cash"-Source
4. We are forced to mentally note what we're spending each time which forces us to save money where we can
• When I only have $32 left in my grocery envelope for the week, it is an exciting challenge to make it work. I raid coupons.com, I shop from the grocery ads, and we scrounge up what we have in the pantry. These challenges only make us more determined to stick to our budget and remember how blessed we are to have what we do.
5. It just plain hurts to hand over cash, especially on big purchases
• Going along with number three, it is a lot harder to spend with cash. There is real physical pain when you have to hand over a wad of $20 bills for a clothes shopping trip or count out the dollars when you are at the local Italian restaurant. We spend less knowing our envelope of cash is shrinking when we do.

Tip #1: Instead of paper envelopes, buy a cheap coupon organizer (we got ours at Target for $1). We keep our cash in the labeled sections and store coupons in the back for when we go to the grocery store.

Tip #2: Only use cash for things that are purchased fairly often and easily. Some of our cash categories include groceries, entertainment, hair cuts, clothing, and home maintenance. Things like online shopping and gas may be easier to use the debit card for.

Tip #3: This is not an exact science and took us a long while to implement but now that we have it in place, it makes our lives easier and we stick to our budget. It is another key to having control of our finances and following biblical financial principles.

Proverbs 27:23

"Be diligent to know the state of your flocks, and attend to your herds."