Envelope System: January Review...

As discussed in this post from a few days ago, Popeye and I have decided to use Dave Ramsey's baby steps towards finding financial freedom in our lives. We began to discuss this plan wholeheartedly in the fall, and decided to implement our plan beginning January 1st of this year.

I want to keep track of how I am doing with this plan and how each month goes so that I can see what we need to fix or change in our plan and what we are doing that is working.  I'd love to hear from any of you who have used this plan or are currently using this plan to see how your stories compare to ours and how you are making this system work for your household. I also want to stay motivated to continue to plan for as long as we need to in order to pay off our debt, and to move on to saving and building for our future.

This is a review of how our first month went.

The first step towards the total money makeover is to accomplish baby step one: a small emergency fund of $1,000. It was funny to read in Dave's book about how people put this money aside. Some put it in a bank, others stash it somewhere in the house where no one could find it. One woman even took ten $100 bills and put them in an 8 x 10 frame in the back of her closet. She wrote on the glass: Break only in case of emergencies. We started our month by committing this amount of money to an emergency fund to be used only for just that: emergencies.

Baby step two is much more difficult and takes much more time. This step involves paying off all debt, except for a home loan, starting with the smallest debt amount first. You then use the Debt Snowball to pay off each loan, progressively working towards your largest loan. Basically, you pay the minimum on each loan you have, but put every extra cent you have to your smallest loan. Once that is paid off, you put whatever you were paying on that towards your next smallest loan, in addition to whatever you were paying on that loan. You continue paying off loans this way until all your loans are paid off. I am not a money manager or an accountant, but in Dave's book there are great outlines and lists of how this plan works compared to other

 popular debt-payment plans, Dave's plan always came out paying off debts sooner using less money.

So, having completed baby step one, we are now on baby step 2: paying off debt. We committed to no longer using any credit cards, and do not even use our debit card unless it is a strict emergency and we don't have cash on hand. I made envelopes listing every "department" we had (aside from bills) and from each paycheck we receive, I put aside cash into each envelope which we use to pay for various items.

The envelopes we had for January were:

Dr/Health/Beauty (all co-pays, medicines, soap, shampoo, diapers, wipes, make-up, etc.)

Car/Repairs (oil changes, tags, etc.)

Gas

Home/Repairs (detergent, cleaning supplies, printer ink, decorations, etc.)

Groceries

Entertainment (eating out, movies, fun activities)

Swee'Pea

Popeye

Olive Oyl

Gifts

Terminix (this is a bill we only get 4x a year, so I put aside a little each month towards it).

Here are the problems I discovered along the way while I was using the plan this month:

1. We don't just get paid once a month... and our pay dates are never consistent because Popeye works for the county. Therefore, I can't fill each envelope at the beginning of the month, and rather make 'payments' to myself. I keep track of the money I've put into the envelope on the right side of the front, and the money that comes out is kept track on the left. I have run into a few situations where I had to hold off getting gas or groceries by a day or two because we had to wait to get cash into our envelopes. I am committed to not using credit cards though, so I kept committed to only purchasing things that I had the actual cash on hand for.

2. Sometimes unexpected things happen. Like having nine doctors appointments with nine co-pays between Swee'Pea and myself in a two-week period in January. Or having to purchase a stinking boot because I was being ridiculous and thought that cheap towel bars could hold my body weight (sidenote: I now need to buy a new towel bar....). We went way over on our Dr/Health/Beauty budget this month. But of all the things you may have to compromise on, this is one I couldn't say no to. Doctors don't exactly like you barter at the counter for what your copay will be for your visit. Or your ridiculous boot.

3. There were some things I simply didn't think of that we spend money on. There were some things that simply don't seem to fit in any category. Like gum. And dry cleaning. And stamps. I don't want to use what little personal money I get each month for gum... but I can't exactly count it as groceries. But what if I buy a large box and Popeye and I share it... then does it count as groceries? And what about dry cleaning? Popeye needs it way more than I do with his uniforms and suits, so should he have to pay for that out of his personal money or do I make an additional envelope? What envelope can stand losing some money if I have to put more money towards a dry cleaning envelope?

4. No matter how much I deny that I needed it, I have to have a clothing allowance. There is never going to be enough in it each month to actually purchase anything of value, but after saving up a few months worth of envelopes, both Popeye and I will be able to purchase a few things. Between the two of us we've lost 40 pounds in the past year... new clothes aren't just a want in this house, they are a need right now.

Here are the things that made me happy and helped me to feel good about the plan:

1. I knew we would never overdraw our bank account. Popeye didn't have to ask me for money to get gas for the truck or how much money he had to eat lunch or go out with friends shooting. We each have our own personal envelope with our own cash. It isn't much by any means, but it is enough that we can have a few times out to coffee or lunch with friends without feeling guilty. It is funny to see how we each use our money: I choose to save mine up until the end of the month to go out to a nice dinner or drinks with friends... Popeye chooses to get as many ridiculously cheap fast-food meals as humanly possible out of his funds.

2. There is no guilt!!! I can buy Swee'Peah\ a pair of flip-flops or a little water bucket and shovel from Target without feeling guilty. I can buy a yummy sandwich or a coffee drink without worries that we won't have enough money left at the end of the month for groceries. Each envelope is meant for what it is labeled, and that is what that money is used for. I loved how at the end of the month if there was extra money I could choose to save it towards something special or buy something extra I wasn't planning on. Swee'Pea's extra envelope money from last month went into this months envelope, as I know that he'll soon need new shoes and summer clothes and I'll want some extra money. And the extra grocery money? That went towards soda and chips and some other treats we normally don't get to purchase. And I got to do it all completely. guilt. free.

3. It is fun! I feel like I am going on an adventure. I love the challenge of seeing where else I can save money, and I love the feeling of accomplishing our goal of paying off debt. I love making my envelopes and lists of finances and typing up my report at the end of the month listing what we spent for each bill and in each "department." Yes, I am well aware that I am a nerd. I've stopped fighting it.

I think that overall our first month went well. The best part of this plan is that I can change it as I need to in order to fit the different needs we will have each month. For February I adjusted the amounts of cash I wanted in each envelope, and also added a few new categories: lawncare and clothes. We no longer have a gardener, so it did not even dawn on me that we'd have to spend money for our lawn. Um, yeah, apparently we still have to buy weed killer and grass seed and gas for the mower.

I am excited to see what February brings with our budget and our envelope system. I feel encouraged by how well this month went, and I'm motivated to continue our plan for as long as we need to accomplish baby step two and beyond!

All my envelopes... I keep track of what I've spent and where on the left hand side and keep all my receipts in their respective envelopes which helps for easy returns when necessary...

My new "wallet"... ignore the labels, this is from my wedding.  I divide my bills into those that are due first of the month and those in the  middle.  I have my stamps, envelopes, address labels, and my check book in here.  And, of course, my trusty calculator!  I just grab an envelope out when I need to go shopping, and this helps with the ease of paying and organizing my bills.

I keep a little flip book in my purse to write down things I notice on sale and things I know I need to purchase in the next few months.  I try to put an estimate of how much they will cost on the side so I can evaluate which I should purchase first or which I have enough money for that month...

My monthly "statement" of all money brought in and taken out.  We paid off some stuff this month with accordance to baby-step one, so we had some transfers from our savings... this was the HARDEST part for me... letting go of my savings.  I swear I keep looking over my shoulder waiting for one of our cars to breakdown or for our house to flood now that we are doing Dave Ramsey.  I'm trying to trust in the Lord though that this plan is right for us!

I know this post was RIDICULOUSLY long. And perhaps no one will read it. But it really helped me a lot to sit down and think out what I have liked and disliked about this plan so far. I hope that this may help some of you who are thinking about doing this plan, or have started this plan but have felt discouraged lately about sticking with it. I just want everyone to know that it is possible, and how excited I am that we are on the road to a Total Money Makeover!