Budgeting - Envelope system

Am I the only one in this country that thinks a budget is a useful tool and tries to stick to it? I use the envelope system for most discretionary spending (Groceries, restaurant, entertainment, clothing, fun money etc.) and I pay my bills mostly online.

When I go to the bank to take out the month's budget I get weird looks and all sorts of questions, plus they constantly encourage me to use my debit/credit card to purchase things. They say how much money I could get in cash back rewards etc.

I'm not an economics major but I think "No such thing as a free lunch" applies to those cash backs as well. When I use a credit card at a retailer the retailer is charged by the credit card company (In this case Chase and Mastercard/Visa) and thus the retailer needs to jack up their prices to cover that 3-5% that the card company charges. Then I get back 1% of that in a cash back offer. Meaning I am, in the end, paying more for my products so that the credit card company can line its pockets.

She then mentioned how I could get this or that credit card in case I needed the money for a down payment on a car etc. I tried to explain that I don't need a credit card for a down payment if I think ahead and save for my new car instead! I just think the whole idea of saving for something is completely foreign to today's Americans.

conpewter said:

Am I the only one in this country that thinks a budget is a useful tool and tries to stick to it? I use the envelope system for most discretionary spending (Groceries, restaurant, entertainment, clothing, fun money etc.) and I pay my bills mostly online.

When I go to the bank to take out the month's budget I get weird looks and all sorts of questions, plus they constantly encourage me to use my debit/credit card to purchase things. They say how much money I could get in cash back rewards etc.

I'm not an economics major but I think "No such thing as a free lunch" applies to those cash backs as well. When I use a credit card at a retailer the retailer is charged by the credit card company (In this case Chase and Mastercard/Visa) and thus the retailer needs to jack up their prices to cover that 3-5% that the card company charges. Then I get back 1% of that in a cash back offer. Meaning I am, in the end, paying more for my products so that the credit card company can line its pockets.

She then mentioned how I could get this or that credit card in case I needed the money for a down payment on a car etc. I tried to explain that I don't need a credit card for a down payment if I think ahead and save for my new car instead! I just think the whole idea of saving for something is completely foreign to today's Americans.

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Sounds like "Dave Ramsey's" system. It's true that in order to get/be/stay debt free you need a budget and stick to it. I apply a few of his ideas to my life but I'm too weak still to do the envelope system It's like those "Feed the Pig" commercials. Do you really need it? If it's a "want" then save for it. As far as the credit/debt card, you still pay the same price for the product if you pay cash (except for gas at some places) and for emergencies I like knowing I have a backup.

Whatever can you mean??? The current state of American economics shows there is no need for such conservative thinking.

I also use a budget, I do use my check card for it though. I spend cash way too easily. It burns holes in my pockets and I somehow can't steer straight home but must stop at my LHBS to spend the cash....

I have an excel sheet that auto divides my deposits and takes money from the correct budget area. Kind of like a poor man's Quicken.

I agree; my wife and I have been using the envelope system ever since we got married 6 years ago. When we stick to it, it works like a charm and we never get overdrawn and we spend less $$. The problem is that it's so much easier and convenient just to swipe that card!

It is based on Dave Ramsey as well as some other people's ideas I've talked with. Basically for me it is much easier to swipe a card than it is to shell over actual cash, so I guess it is how you prefer to work.

Oh and we do use a shell credit card for gas and always have it for a backup (as well as the debit card) but cash helps us see how much money we really are spending, and helps us save up for something we want.

The whole economics of credit card use was more of a rant than a "you will save money if", I was speaking more from a macroeconomics standpoint.

Edit: oh and I am such a lucky guy that I married a woman who is just as thrifty as I am.

I have three credit cards. One for gas, one for food and one for spending. I set the limits on the cards and keep track of purchases and pay them off twice per month (every paycheck). I have never paid a cent in interest.

I'd prefer to use someone else's cash rather than my own. I have actually saved money using this method as I don't pull money out of checking for frivolous purchases and I don't risk overdrafting my account.

Remember that the first rule of business is to never run out of cash!

We use a budget, but we don't take the money out of the bank to separate it out, we leave it IN the bank, where it earns interest, and we simply keep track on paper how much is in each "envelope", and how much NEEDS to be in the "envelope"

Well I am glad to see that there are several people with budgets. I understand that leaving it in the bank will get me earnings in interest, but generally I'm willing to spend that $2.00 a month to have the money in my hands and not have to keep track on paper how much I have left in that budget to spend that month (I'm lazy...) But I understand if you have a good way that works for you then great!

I really agree with the risks of overdrafting a checking account, greatly reduced when you use a budget and track what you have. I need to set up our emergency fund in something other than a checking account (money market perhaps)

rabidgerbil said:

We use a budget, but we don't take the money out of the bank to separate it out, we leave it IN the bank, where it earns interest, and we simply keep track on paper how much is in each "envelope", and how much NEEDS to be in the "envelope"

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Ditto, I'd rather earn 3% or more in my HSBC online checking account and get airline miles and hotel points using my credit card rather than having cash sit in an envelope. And what happens if you misplace or lose and envelope? Do you not eat for the month? With a credit card you just call them and they'll send you a new one.

If you're not disciplined, then I can see how the envelope is a good idea, but otherwise, I don't see how the point. How is it different if you have an envelope with $100 in it instead of telling yourself "Don't charge more than $100 at the grocery store today"?

Also, if you don't use credit cards, it's going to be really hard to qualify for a mortgage because you'll probably have a low credit score (unless you've taken out loans for a lot of cars).

Just because they give you a $10k limit on your credit card doesn't mean you should charge $10k.

I take a lazy and safe approach. I charge most things (I always pay cash at local businesses, though. Shop your values!) so I've got a pretty good idea of what my Visa bill will look like. My mortgage is a constant and so are my gas, electric, and cable (in a general sense). I follow a rule of thumb to have ~1.5 months of living expenses in my account at any given time. I also fairly strictly regulate my purchases to needs (I know this doesn't work for everyone, but I've always been this way. As a child I'd put my allowance in a tupperware instead of spending it.). From there I let my savings balloon until I see something I really want and either blow the "extra" $ or start saving in earnest.

drunkatuw said:

Ditto, I'd rather earn 3% or more in my HSBC online checking account and get airline miles and hotel points using my credit card rather than having cash sit in an envelope. And what happens if you misplace or lose and envelope? Do you not eat for the month? With a credit card you just call them and they'll send you a new one.

If you're not disciplined, then I can see how the envelope is a good idea, but otherwise, I don't see how the point. How is it different if you have an envelope with $100 in it instead of telling yourself "Don't charge more than $100 at the grocery store today"?

Also, if you don't use credit cards, it's going to be really hard to qualify for a mortgage because you'll probably have a low credit score (unless you've taken out loans for a lot of cars).

Just because they give you a $10k limit on your credit card doesn't mean you should charge $10k.

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The bottom line is not having to pay interest. If there's a car you want, save your money and pay cash. You'll pay less for the car. Same with a house, not as easy to do, but it is possible.

HBHoss said:

The bottom line is not having to pay interest. If there's a car you want, save your money and pay cash. You'll pay less for the car. Same with a house, not as easy to do, but it is possible.

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I do pay cash for my cars, but not my house. I didn't want to wait until I was 40 to pay cash for my first house.

As far as credit cards, I haven't paid any interest since I got my first card because I pay it off every month.

GearBeer said:

(I always pay cash at local businesses, though. Shop your values!)

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This is my point that your airline miles or cash back are not free, you are charged for them by the store you are purchasing at (even if you use cash since everyone else is using credit cards).

But Yes I do have credit cards, several I don't use (but once a year perhaps to keep them active) and one we use for gas. I don't have any problems with a credit rating (Despite never needing a car loan).

If you keep track of your budget on paper/online I think that is great and it works well for you. For me I hate entering every purchase I make to see how much money I have left, I'd rather just look in my wallet (for fun money/restaurant money) or in a drawer and see what I have I can spend.

Never considered the envelope approach, but I like it.

I have an overly detailed monthly budget that accounts for every penny we earn a month. From the auto deducted mortgage, to the 4 different savings "systems" i have. The only financing I do not track in it (yet) is the retirement accounts since they are pre tax anyway.

The majority of my real interest earning cash lives in a high yield savings account, and gets a monthly cash dump for our general savings. The gas and groceries are on one debit card, and my wife and I each have a disposable spending debit card for our own enjoyment. I think the cash in the envelope would be great, except I do buy some stuff online. I guess I could dial it all in over time...

I will never use a debit card for anything other than ATM withdrawals.

Have Taco Bell Joe get ahold of a bank account number and you'll know what I mean. Screw that!

Cash or Credit only and pay the bill before the interest accrues. Let the CC company leagal department handle the ident fraud if it occurs. At the least, the CC co will drop the charge til' they can prove it was a valid purchase. the banks not so much. Guilty til proven innocent. the money is already gone and they aren't putting it back til you prove theft.

I have never liked giving a company my bank info, so I send the money from my bank account (Pay Bills option on the Chase site) instead of letting them pull from my account. If there is ever a dispute they don't have the ability to just take money if they feel like it.

Anyway as for online buying I really only do that for stuff I want, not need (Haven't found a reason to buy groceries online yet...) so what I generally do is buy what I want and then I put the money from my wallet in the front of our drawer with the envelopes, then the next month when we plan to take out the budget we subtract that amount from what we'll go withdraw. A little complication but we only have to do that math once a month.

Oh and my other wrinkle is that any money I can make besides my job and investments I get to spend how I like... on beer stuff (and the same for her). That's kind of a nice incentive for side projects.

I don't budget.

I use my credit card all the time and pay it off every month.

I put $75K CASH down on my house then paid it off in 2 years, 2 months...

After all the bills are paid I still save $2500 a month (in a CD) in addition to my work retirement plan.

I'm down $32K in the past weeks in the Thrift Savings Plan.

I too am a strict budgeter, but I use spreadsheets rather than the "back of the envelope" for budgeting.

Using my debit/credit card to pay for everyday purchases helps me reign in my spending, because I can export the transactions each month to monitor exactly what I spent. That way I can keep track of where I am wasting the most money (beer).

It depends on your makeup. What I mean by that is I can gauge rather easily the amount I spend on a card and pay it at the end of the month, the advantage of this being in the form of a return and the convenience (and added security) of not having to carry my cash. For others it is much easier to "see" the money in front of them. I agree, the budget is a necessity. The only thing that I don't like is someone else can easily find out my spending habits. Fortunately I have nothing to hide, but entertain a random thought for a moment....

....Picture in the future all of your spending in the grocery store tied to a database that is monitoring your spending habits for 'flags'. These 'flags' could be tied into other systems such as health care, insurance, credit scoring. You can laugh, but in France, most banks won't allow you to get a home mortgage without passing a physical. How convenient would it be for a Health company to drop you as a risk say if you continually eat Red Meat or something and have a family history of heart disease. Yes, probably won't happen, but you never know. The upside of this would be that those who are abusing the health care system by continually making selfish choices (say the guy that doesn't give two craps about a heart attack and says "that's what insurance is for" and continues to gorge himself on 70% lean burgers 5 times a week, doesn't exercise and has a family history) could be culled (multiply his case by however many people are out there like that by the amount of money a bypass and all that jazz costs and you can see my point). I know this is all very fantastic, but the current financial Tsunami triggered by careless overextension is proof enough that at one point there will be intervention. If we don't take care of problems at home, we can only look forward to the reduction of personal freedoms.

Sorry for the rant

zoebisch01 said:

....Picture in the future all of your spending in the grocery store tied to a database that is monitoring your spending habits for 'flags'.

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The grocery stores already do this. They use those shopper discount cards to track the spending of their customers. Fortunately atm all they use the data for is to help target their advertising in local communities.

John_Peters said:

The grocery stores already do this. They use those shopper discount cards to track the spending of their customers. Fortunately atm all they use the data for is to help target their advertising in local communities.

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Yeah that too :fro: It's like the NAIS. Right now its all voluntary. Down the road though, all it takes is situational necessity and with the stroke of a pen, our individual freedoms get removed.

zoebisch01 said:

Yeah that too :fro: It's like the NAIS. Right now its all voluntary. Down the road though, all it takes is situational necessity and with the stroke of a pen, our individual freedoms get removed.

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[paranoid] Just wait until they start using our GPS systems to track our every move and determine if we ever speed with our cars.[/paranoid]

My wife and I started using the "envelope system". However, we only use it for groceries and our "blow money" (personal money, not cocaine). We considered using envelopes for gas but its such a hassle to just go in; so, we just use the debit card for everything else.

We have seen the grocery bills go down quite a bit since using cash... I guess there is more of a sense of if I spend too much I have to put something back, so bare essentials is all we're getting. We have been living on a written (week by week) budget since we were married 1 year ago and it really does feel like you got a raise, its weird.

So, I think its worth giving it a shot at least. If you don't like it... its not hard to go back to the other way right?

Neal

I don't know how one could own a home and have a happy marriage without budgeting and home accounting! We have a very simple excel spreadsheet that counts the money going in and the money going out.

However, different from you... we maintain two accounts each: one for personal discretionary funds and one for the home and bill paying. We use cards and online bill pay for everything. I don't remember the last time I kept actual cash in my pocket.

I don't care who knows what about what we spend money on (r.e. credit card tracking). If the government wants to lock me up for no reason and throw away the key without due process at all, they can do it and there is nothing I can do about it... so I don't worry about that at all.

My wife and I pay for everything with ONE credit card which offers a reasonable cash back on all purchases. This being said, ALL purchases come out of a comprehensive budget that is prominently posted on the fridge. EVERYTHING is accounted for via reciepts and our statements...

Our budget consists of about 16 categories, all of which we have a predetermined spending limit. At the end of each month, if there is money left in a given category, it is NOT rolled over to the next month... it is considered extra savings. If the category is tapped out, it is tapped out... period.

We prepare our budget based on my income, which includes no OT and no per deim... we budget to save 24% of our pre-tax income which is then invested in a variety of mutual funds inside, and outside of my company sponored 401K...

The envelope plan is an awesome plan, basically we have a "virtual" envelope plan, with all CC purchases deducted from the budget spreadsheet as they occur.


____________________________________
Primary- Orange Cascade APA
Secondary- AIR
Keg1- Centennial Blonde
Keg2- Oktoberfest
Keg3- Christmas Spice
Keg4- Fire In The Hole
Keg5- AIR
Keg6- AIR
Keg7- AIR
Keg8- AIR

The Pol: Thats basically how mine works. It is so much easier to save if you have your savings redirected from your pay-check automatically (leaving only enough cash for your budget). That way you never risk over spending each month.

John_Peters said:

The Pol: Thats basically how mine works. It is so much easier to save if you have your savings redirected from your pay-check automatically (leaving only enough cash for your budget). That way you never risk over spending each month.

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That's how we roll. A standard deduction from each check split into 3 seperate savings accounts. 1 for a nest egg, and the 2 others are "college funds" for the boys.

We don't do envelopes, but we do keep a detailed budget in our household tracking spending in excel...it allows us to make savings goals and stick to them, as well as seeing where we can cut back on spending. Everyone should do some sort of budget, then maybe the average American wouldn't spend more then they earn...

HBHoss said:

Sounds like "Dave Ramsey's" system.

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Except my mom started it long before he did. I married very young (18), mom's gave us an old safe deposit box with an envelope marked for every expense, rent, car payment, utilities, and savings. Every Friday after payday, we put 1/4 in every envelope. We didn't even have a checking account for the first 2 years of marrige, just paid everything with money orders.

Of course we now have a checking account and credit cards (which are paid off every month) and a credit score of 800 and not one missed payment or defaulted loan in 21 years of marriage. I believe this is an excellent training tool for kids today.

wildwest450 said:

Of course we now have a checking account and credit cards (which are paid off every month) and a credit score of 800 and not one missed payment or defaulted loan in 21 years of marriage. I believe this is an excellent training tool for kids today.

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That is great, glad to know others have benefited from a system similar to it. I also think that parents need to sit with their kids and teach them how to deal with money.

P.S. your mom should get royalties from Dave Ramsey

I'm lucky that we don't have to live on a strict budget for two reasons. First, we have enough reserves that we're not going to come up short on any given month. Second, both my wife and I area extremely thrifty on our spending. We always discuss purchases first and nothing is unexpected. I HATE carrying cash. I lose things too much.

Buying on credit is powerful. Dangerous for many people, but powerful. Think about the current lending crisis and how tight the banks are with their money. THAT is why the market is tanking because real business requires credit. It's called leverage.

I bought my first house when I was 21 and I borrowed 116k to buy the 128k house. 5 years later I sold it for 240k and owed 110k of that back. If I would have waiting until I could pay cash, it would still have been out of reach and I'd be renting an apartment 11 years later instead of rolling that equity forward. Sure, tell that to people who took those 100% financed ARMs at the peak of the market... I'm not really talking about them.

Bobby_M said:

I'm lucky that we don't have to live on a strict budget for two reasons. First, we have enough reserves that we're not going to come up short on any given month. Second, both my wife and I area extremely thrifty on our spending.

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The purpose of our budget is not because we are cash strapped or not thrifty, quite the opposite. It is all about long term planning. My wife and I are both 28. We plan to retire early, pay for my daughters college and wedding (she is half greek, so that will be huge). The budget allows us to live to our standards, knowing we are set for major life events, both planned and otherwise.

conpewter said:

P.S. your mom should get royalties from Dave Ramsey

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I agree. She also bought us 6 month's of renter's insurance as a wedding present, with the promise we would keep up the policy. I wasn't impressed.

A year later our rented house burned to the ground at midnight, with us barely escaping. It turned out to be a $20,000 present.

My wife and I are not cash strapped by any means either, like I said, we SAVE 24% of our income, but still live on a strict budget... why? It is proven that if you have a budget that accounts for what is going OUT, a lot less goes OUT. Budgeting is knowing what you have, and what you give away, precisely... not about keeping your head above water.

Frankly no matter what your process or tracking mechanism is, the end result should always be spending less than you make. Envelope, software, jotting notes, whatever. There needs to be more of that kind of thinking and much less BS self entitlement.

What, may I ask, is the envelope system?

If you are a debit credit card user, use quicken online to do your budget for you. It downloads all your transactions from each card and coordinates with your bank so it makes cool pie charts to show how you spend your money.

talleymonster said:

What, may I ask, is the envelope system?

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Basically you write out a budget (or decide some other way) a monthly amount that you are going to spend on particulars. An example would be the grocery envelope would get $500, or whatever you decide, and that's all you can spend on groceries for the whole month... which really makes you rethink impulse buying.

Neal

edit: Here is Dave Ramsey's explanation of The Envelope Budgeting System