To be honest, my wife and I have never really been big fans of the “envelope system”. I have read many different articles from many different people explaining how this system has allowed them to better organize their finances and help to keep savings goals on track. The idea of it is great and it is meant to build habits of using cash rather than a credit card, which is a fantastic thing, but I have found that it just doesn’t work for us. Well, at least on a weekly/monthly basis anyway.
We tried it before, using envelopes for things such as gas, groceries, household repairs/improvements, but it just never stuck. We would go out to do our shopping and then while at the cash register realize that we left the envelope at home and end up using out debit card any way. Since the money was then essentially taken out of our account twice (once for the cash we withdrew and once for the swipe of the debit card), we would end up having to go back to the bank to deposit the money back into the account. It became more of a hassle than it was worth.
Finding A System
At the beginning of this year, we decided to do something a little different and we came up with “planned event” envelopes instead. Before I get to how we did this, I would like to explain a little more about why we did this. Each year in February is when I receive my annual bonus check from work. This is certainly a great benefit to have and I am very grateful for it. Additionally, since we do like to stay on top of things, my wife and I like to get our taxes done in the beginning of February as well. By this time, we have all the documents we need and can efile with direct deposit so that we get our refund in about 3-4 weeks. This means that around the end of February or early March, we see a significant jump in our bank accounts. (If only it could always be this way, right?)
Seeing this higher balance can make it very tempting to purchase some “unneeded” luxury items that momentarily improve our lives. On the other hand, it also is tempting to use it all to pay down debt. (Don’t get me wrong, paying down debt is certainly a great thing). However this can lead to a higher cost than you intend. This is simply because we used to use this “extra” money in full to make large payment to a debt only to find ourselves later digging deeper into debt because we no longer had the cash on hand. What can I say, you live and learn.
“Planned Envelope” System
The planned envelope system worked out for us. There is certainly room for improvement, but 2017 was our first year doing this. Here is how it works. Rather than spend the money on things we don’t need or make large payments on things we owed, we took out a large chunk in cash and separated it into envelopes. We had an envelope for a vacation fund, an envelope for the annual barbeque that we host, an envelope for family birthdays and an envelope for Christmas. We then designated an amount for each of these events and put it in the envelope and sealed them up.
When it came time for each of these events (or once they get here), we went to the envelope for the money we needed instead of trying to figure out how to finance it. The system worked wonderfully. It was such as great feeling to know that the things we needed were already essentially paid for since we were not counting that money in our regular monthly expenses. After doing this for the first time this year, I certainly plan on doing this again for 2018 and even tweak it a little bit. Having a plan ahead of time took the stress and worry out of being able to afford the things we set money aside for, especially since the events we planned all happened within a 2-month time period.
For next year, there are a few categories I have in mind already that I think would be a good idea to do this for. Here they are in case you plan on doing something similar and need ideas of your own:
- Birthday parties
- Family vacation/getaway
- Annual BBQ
- Back to school
I am sure there are more that I will think of as next year gets closer. The great thing about using a system like this is that you can designate the amount you foresee using, no matter how big or small. For instance, one envelope may have $500 whereas another has $50, depending on your own personal structure.
Not Just Cash
In my job, I earn little bonuses from time to time. When I get these bonuses, many times I have the option to get it in my check or in the form of a gift card of my choosing. Depending on the timing of these, sometimes I opt for the gift card which better helps me to have a purpose for the money. When this happens, the gift card can be put in the envelope rather than cash.
For instance, if I am able to get a $50 gift card as a bonus, I may choose to get it for Toys R Us. Then, once I get the gift card, I know what it is for and can allocate it to the “Birthdays” envelope. One of the benefits of doing it this way is that it makes it less tempting to use the money for other things. Ok, so what if I end up not buying anything at Toys R Us for the birthdays this year? I am then out of the money, right? Not exactly. As a parent, I know that there will always be something that this card can be used for: this year’s birthday gift for on of my children, a birthday gift for a friend’s child, a birthday gift for another family member, or even Christmas.
Better yet, this same concept can apply to general gift cards, such as Target or Meijer. These places sell such a variety of things that these cards can be put into almost any envelope you need. It is certainly great to have places like this can you can purchase so many different things.
Having a Plan
Setting up a system like this means that you have a plan to keep your money and finances organized. It allows you to think ahead about what you will do with your money and how you are going to finance certain things throughout the year. As I had mentioned, this is something my wife and I just started with this year and plan to do next year as well. Now that we have gotten our feet wet with it, I am sure that going forward it will work even better.
- Do you use the envelope system? How does it work for you?
- What do you think about the idea of the “Planned Event” system?
- Do you think this would be beneficial to getting your finances more organized?
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