Tuesday, September 7, 2010

Envelopes - Not just for cards and letters!

*Disclaimer: One day, the Roberts will be completely debt free. We need friends in this same position so we can do cool stuff together. Like take vacations. So please, please, consider this as you read. Thank you. And have a nice day.

Let's take a moment to talk about personal finances, shall we? Here's some dirt for you: Eric and I have DEBT. It's ugly. And we hate it. And we want it out of our home. See, we have goals and dreams for our family, and having debt is like having a cinderblock tied to our ankles. It's slowing us waaay dooown. Obviously, at the rate we are having children, time isn't standing still for us. Either we do something about it now, or we'll be wallowing in it forever. And who is going to suffer the most in the long run? Our kids.

That hurts my heart as a parent. We want our kiddos to do things. We'd like to go to Disney World. We'd like to live in nice homes. We'd like to send them to college. And we're not going to go further into debt to do it. Period. So somehow we have to cut the cords on our cinderblocks. We need to break free so that we can start saving and investing money, rather than seeing it fly out the window each month. 

"Debt is dumb, and cash is king." That's a popular phrase that financial guru Dave Ramsey uses every day in the intro to his radio show. Believing that "cash is king" seems like a stigma in this society. Even those that don't believe in using credit cards can't imagine not swiping their debit card at the check out. Using cash is inconvenient...it's embarrassing. It isn't safe. What the what? Really?

What's embarrassing and unsafe is the fact that, for a time, we piddled away our money each month without even thinking about it. We did. And then we realized how ignorant it was. Did you know that we spend 10% more using our debit cards than paying with cash? It's an emotional and psychological thing. Because when we pay with cash, we think twice about what we really need. Not to mention, many businesses are becoming more accommodating to cash customers. Several gas stations are beginning to offer discounts for using cash, and it's always easier to haggle a deal with cash in hand. 

Us. Taking control of our finances. Haha. 

So when we decided to ATTACK our debt with a vengeance, we determined the only solution was the one we knew we should have be doing all along, but we just...couldn't...take...that...step. Ready for it? We tossed the debit cards. *Shriek!!* And now, in our home, "Cash is King." For the past couple of months, we have been implementing a tried and true way of handling money, and that is using the Envelope System for our basic needs.

And WE ARE ROCKIN' it! Just by budgeting and using cash, we're easily saving $400 a month. Easily. That's a conservative number. And anything extra we have, we throw in the face of our debt. In under two years we will have all of our $40,000 student loan debt paid off. Gone. Forever. Sianara! And we are so not looking back.

Here's a peek into how we work the Envelope System at our house. But we'll use our imaginary friends the Joneses as an example. We're supposedly trying to keep up with them, after all.

Meet the Jones family. The Jones family uses the Envelope System. Hi, Joneses.

After figuring out their monthly income and making a rough budget, the Jones family has decided to break up their "everyday expenses" into 5 categories. (You could break it up however you want.) An everyday expense is something that you generally have to go into a store to buy. It isn't a bill you usually write a check for or have taken directly from your account, like your mortgage or utilities. In the Jones home, they have "Food," "Household," "Clothing," "Gas," and "Entertainment."

Each pay period, the Joneses bring home $2,000. (Let's keep it even, I'm bad with math, haha.) They deposit their check, and then withdraw the amount they have budgeted for everyday expenses for that pay period. In this example, they withdraw $800.  The Joneses have allocated their expenses as follows:
Food: $200
Clothing: $70
Household: $180
Gas: $180
Entertainment: $170

They make an envelope for each category, and then put the determined amount inside each envelope. 

Now here's the rules: They cannot buy something without their envelopes. "Cash is king," so if they don't have it, they don't spend it. And once it's gone, it's gone.

 If there is money left over at the end of the pay period (which surprisingly, there often is) then they have two choices: role it over into the next period and save up money in that category, or take the extra and use it towards paying off more debt that month. The Joneses usually role over their "Clothing," and "Entertainment" envelopes, and use the rest in the other categories towards an extra debt payment.

Thanks, Joneses! 

The key thing to remember with the Envelope System is that YOU get to decide how much goes into your envelopes based on your priorities. And priorities can change from month to month or pay period to pay period. For example, this month Eric needs a new suit. So we may put a little more in clothing and a little less in entertainment. 

It may seem archaic, but I'm telling you IT WORKS. We, and thousands of others using this system, are living proof. My husband works in finance, and we're not "too good" for the Envelope System, haha. In fact, we'll be laughing all the way to the bank when we have no debt. I can't wait! 

To top it off, believe it or not, we have a life. We don't feel like we're being pinched into a corner by our budget, or that we're making HUGE sacrifices. We're just finally telling our money where to go instead of letting it slip like sand through our hands. Honestly, we can't figure out why we didn't do this from the beginning! And...here's a little secret...it's kinda fun. In a nerdy sort of way. :)

The *actual* Robert family envelopes. Whoa. We're getting personal.

Here are a few tips we use to make our budget stretch even further:
*We shop at Aldi for whatever we can. I remember the first time Eric went shopping at an Aldi store. He was amazed. Seriously. Like a kid in a candy store. Obviously his parents never took him to Aldi as a child, haha.
*We invested in really awesome refillable plastic bottles and stopped buying bottles of water.
*We eat out a whole lot less. We still eat out, don't get me wrong, but when the money is slowly leaking out of our "Entertainment" envelope, we think twice before hitting the drive through. (We're saving about $200 a month in this area alone. Can you believe it??)
*We drive paid for used cars. We don't subscribe to paying interest on something that is depreciating in value. So for this reason, we would never finance something like furniture, either. 
*We hardly ever buy clothing without a coupon, and we shop a season ahead for our kids, getting really good deals on boutique clothing!

I really encourage you to try out the Envelope System! Maybe you don't have any debt. That's awesome!! But it's still fun to save money anyway, right? The Envelope System can work for any family, in any financial situation, and it's not rocket science. We love it! Try it out, and see if you love it, too!


Cassie Walter said...

I know I have told you this before and I will tell you time and time again, Dave Ramsey and his Financial Peace University classes are amazing. We are in week 5 and every-single-week is another eye opener.
We just started the envelope system 2 weeks ago. We have Entertainment, Giving, Groceries, Resturants. They tell you, DO NOT spend it unless you have your envelope. I literally was like oh it's ok, I will just use my debit card and then take the money out of the envelope and put it in my account, NO! I slapped myself upside the head. Take the extra 2 mintues to turn around and get your envelope. Just like you said, you will spend WAY less.
And you are right, you can still have a life, just a more reasonable life. Like Dave said, today's society tries to have in one year what it took our parents 30 years to get. This is all common sense people, just today's world doesn't want to listen to it. After a 2 hour FPU class you will have a whole entire new outlook on your money, no doubt!!

Best of luck on being debt free!! I am working on paying off $6,000 in debt in 6 months. It's so hard but I am doing so good. I haven't bought ANYTHING I did not NEED. I tell myself every paycheck I can and WILL do this!

Keep it up!!

Daniel M. said...

This definitely sounds like something I would try. I may take a different approach to it seeing as how I am debt free, and intend on staying that way for the time being. I hope to utilize my budget more carefully in order to save money in a more effective way.

I do have one question though. I know you guys got rid of your debit cards, but what if things fall in budgets that you actually need a card number to pay for?

For example, Netflix. Would this fall under entertainment? How would you pay for this without a debit/credit?

Eric Robert said...

@Daniel: We didn't get completely get rid of our debit cards, we just quit depending on them for daily use. Netflix and my gym membership are just about the only thing the for which the DC is necessary in our case. I also have used it paying various bills online.

Netflix is part of our entertainment budget, but it doesn't come out of the envelope. Overall we've capped entertainment at 5% of our take home pay, and I adjust down the entertainment envelope cash by ~$10/month to make up for the Netflix subscription.

Adrien didn't mention it, but we use ClearCheckbook.com to keep our checkbook registry. I hate paper registries because I'm always missing either the pen or the registry. Using ClearCheckbook keeps us in sync. Plus it has a great mobile web app for your phone.

Adrien said...

Yep, what Eric said. :)We didn't cut up our debit cards like you would cut up a credit card. They are still there, but we don't use them day to day.

Cassie, I'm so glad to know we're not the only ones doing this right now! More people should jump on the bandwagon, and then we wouldn't be the odd ones. Of course, as Dave Ramsey says, "Normal is broke. I don't want to be normal!" I would just LOVE to be in the Target check out some day and see someone else whip out their envelopes! Haha.

Ashley N. said...

I know you said you shop a season ahead for clothes for Evie, but what about a whole year? We buy clothes for the boys, for say, next summer, now. We save a boatload! And mom's pretty good at predicting their sizes for the next year, too. Just a thought! By the way, I really like your blog....it help me keep up with the goings on in your family.

Anonymous said...

Adrien... here's a story for you.

I am cashiering at Walmart right now, so ten minutes to the end of my shift this guy comes through, huge cart of groceries and household items, he splits them up on the belt (you getting where I'm going?) after I ring up all the food he asks for a total, then at the end he whips out this awesome little leathered book with envelopes inside, coolest thing ever! I literally say, "Is someone doing the Dave Ramsey?" he gets a huge smile and says "yeah, wouldn't do it any other way!" so you are not alone!

Lisa N. (Ashley/Amber's mom) said...

Very interesting Eric and Adrien, and fantastic! One question, and one which probably a lot of others could grow in their spiritual walk from knowing. God provides ALL we have and we are suppose to give back to God a tithe (10%, which we believe should come off of your gross income not net, but this is debatable as far as the gross or net), but do you allot for this in your budget? It wouldn't need an envelope because you can pay it when you get paid, but I think its important for others who may be in debt to see that you can be faithful to the Lord in tithing and still get outta debt! HE WILL bless that! Do you have a testimony to share on this? Most people don't tithe because they think they cannot do "without" that money when in reality its all God's anyway! We are just to be good stewards and give back 10% first and He lets us keep 90%!! Now thats an awesome God!! Blessings to you both and your family! BTW, your house decorations are cute!!

Adrien said...

Oh yes, Lisa, that could be an entire blog post on it's own! Prior to using the envelope system, we were guilty of giving sporadically. It wasn't that we didn't intend to give every paycheck, but we would forget the checkbook or not have the cash on hand. Even though, as a heart issue, giving has always been important to us, because we didn't have a plan it was too easy to get distracted.

Now we intentionally plan exactly how much to give each paycheck and to whom we give it. We believe that giving to your home church is of utmost importance, but also that other organizations need help, too, as part of the "bigger" church. We don't use an envelope because all of our giving is either automatically drafted monthly from our account or we use a check!

Steph - That's so funny! Yeah, Dave has some pretty cool gear to help people get started...but we use good old fashioned clasp envelopes! (Because that's all we budgeted for...wink, wink.)

And Ashley - That is also a whole other blog post! I buy most of Evie and now Grace's clothes at one place, and I go there twice a year! I'm sure you'll be seeing more about that in the future. ;)

Rowanmayfairs said...

We bought Dave Ramsey book and read it.

Do you still pay your bills with your checking acct? We have quite a few bills that won't let us pay anyway but auto withdraw. If the cash gets lost in the mail we are screwed cause we have no proof of payment.

What lil is leftover after bills.. Food,Cat Food/Litter,and household necessiaties. We rarely eat out !

Our biggest issue is the car payments.. I had to trade in my piece of junk for another vehicle.. My other vehicle..tranny slipping,4x4 out, engine knocking,cv joints going out, cathletic convert bolt rusting out. It just wasn't dependable and not worth fixing. Mechanics all advised to ditch it cause it was just going to keep costing more and more money. Can't get out of car payments when nothing lasts more than 5-6yrs . I've never owned a vehicle that was worth keeping by the time the loan was up.

I have a 2nd job.. Just to help pay bills and cloth our DD .. I sew (have an etsy store) that helps put clothing our DD's back and pay Cell bills.

We talked about what we could drop to save money and there isn't anything.. We have cell contracts.. We have a satellite contract.. Our internet is the only thing we could drop and thats our "entertainment" (along with satellite)

Adrien said...

Great questions! Yes, we still pay bills with the checking account. Most of them are automatically drawn. We only use envelopes for the everyday expenses that we would have to walk into a store (or restaurant or movie theater, etc.) to buy.

We don't personally have car payments, because we only buy what we have saved up for. Neither my husband nor I are driving cars that we absolutely LOVE, but they're totally fine for now. Actually, the reasons you stated for always needing to replace a car every five or six years is the EXACT reason why we don't do car payments. Kinda seems like that money is being flushed down the toilet, if you know what I mean. One of the first things Dave Ramsey usually advises for people who need to find money somewhere is to sell their cars that payments are being made on and buy a beater. Doesn't sound like much fun, but you don't have to drive it forever! You'll be amazed how freeing it is not to have that payment!

My husband and I dropped satellite and got a MUCH cheaper cable/internet bundle when we decided to get out of debt fast. I realize that there are are sometimes penalties for ending a contracts early, but one trick I've learned from Dave Ramsey is that EVERYTHING is negotiable, haha. Just tell them you're going to switch and they'll either lower your payments or wave your fees. They'll do anything to try to keep you around. And many places will offer great deals if you decide to choose their business. Just call up your provider and be honest. Say, "Look, I can get this service for $x.xx and I'm thinking of switching. What can you do for me?"

I'm glad you have one of Dave's books; he can explain things much better than I can! The hard part is implementing his common sense advice. There are almost always places we can cut out extra stuff, it just isn't always convenient to do so. Good luck!


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