Budgeting and The Envelope System

A few years ago, my husband and I went through Dave Ramsey’s Financial Peace University. It completely changed the way we handled our money. I am convinced that if we had not started a budget and stuck to it, that we would not be where we are today. We have very little debt, we live below our means and put money into our savings account every month. The Lord has blessed us, and we have everything we need and most of what we want, and for the other things we want, we are saving to afford them.

Dave Ramsey recommends using his 7 baby steps. Step one is to get $1000 in the bank to start an emergency fund. It’s to only be used for unexpected evens in life you can’t plan for. This has come in handy for us when I have needed dental work and when my husband doesn’t get his salary in the summer since he’s a teacher. We have consistently kept this $1000 in the bank for about 4 years, except at the end of summer when we have used a chunk to pay our bills waiting for his first school pay check. Then I hustle and get the balance up to $1000 again.

The second baby step is what he calls the debt snowball. You make a list of your debts, excluding the house, in order. The smallest balance should be your number one priority. Don’t worry about interest rates unless two debts have similar payoffs. If that’s the case, then list the higher interest rate debt first. We are in the midst of doing this now. When we found out our son had a cat allergy at 6 months old, we knew we needed to replace the old carpet in our home. The balance on that card is finally below $1000! Praise God! The second credit card we have is for my emergency dental work. We didn’t have the $800 to pay for the work, but I was in so much pain, the credit card was the only option. Other than this debt, we have a car payment and a loan from my husband grandma for his college and the down payment for our home. We pay her $50 a month (and will probably do so for the rest of our lives!), so I don’t count that into the debt snow ball. Once the credit cards are paid off, we can up our payment to her. (Thank you Grandma!!!)

The third baby step is 3 to 6 months of expenses in savings. This step is to come after the debt snow ball. At one time, we had paid off all of our debt and started doing baby step 3. We will get back there soon!!

I can’t really comment on the last four steps because we aren’t there yet, but if you are, here is the link to Dave Ramsey’s website.


The only way we were able to even get started on baby step 1 was to start a budget. We had never really budgeted before, we just tried to spend wisely and pray there was enough. The Lord always provided, but I hated the stress of managing our money that way. Enter: THE BUDGET. Now, I know some people are opposed to budgeting, thinking that it all works out on paper, but life happens and practically it doesn’t work in real life. I felt this way when we first started, but now I am a believer. The budget will work if you are consistent, plan well and have self control. We spend every penny we earn on paper before the month starts, so we know exactly where our money is going. We control our money, our money does not control us. It provides such peace of mind!

We use Dave Ramsey’s Monthly Cash Flow Plan for our budget. Here is the link: http://www.daveramsey.com/tools/budget-forms/

It’s incredibly simple to use (exactly what I need!) and I print out a new one every month and fill it out before we get paid. It’s great because you can figure out what you spend on gifts a year, and divide that into 12 months and know exactly how much to save each month. This is also really helpful with car repairs and licence and taxes.

The second tool we use to stay on budget is the envelope system.

I can not recommend this enough!!!  When we get paid I pull out cash to spend for the following categories:

  • Groceries
  • Out to Eat
  • Household Items
  • Baby Stuff
  • Clothing
  • Gifts
  • Hair Care/Beauty Items
  • Doctor Co-pays/Medications
  • Home Repairs
  • Car Repairs
  • Licence and Taxes (registration, smog, licence renewal)
  • Vacation
  • Blow Money (money my hubby and I can spend without having to check with the other person)

Now because we don’t bring home enough to fill all the envelopes at once, I split it into two withdrawals. I know that I pick up my monthly prescription toward the end of the month so that can come out of the 15th of the month, I know I won’t be using the licence and taxes money but twice a year, so that can come out of the 15th. I pull out 1/2 of the grocery money and 1/2 of the baby stuff month on the 1st. You will need to find out what works for you. Maybe you have enough at the beginning of the month to fill all of them. That’s awesome!

Now comes the hard part. I only spend the money in the envelopes; I don’t use my debit card (except for gas). Once the money is gone in a particular envelope, it is gone. It takes self control and discipline, but I can tell you, I don’t overspend. And that’s the point, right? Now if something comes up and my son needs something, but all the cash is gone from the baby stuff envelope, I might take money out of my hair care envelope. I don’t ever pull money from the car repairs envelope or home repair envelopes. Those are too important and something always comes up where I need that money. But I can give up dying my hair for another month (if you feel that’s impossible for you, maybe you can give up your weekly coffee run). The cool thing is that you are pulling from other envelopes and not your checking account. You still don’t overspend.

Now I can hear you asking, is it worth it? I can absolutely tell you that, yes, it’s worth sacrificing a little now for a bigger reward later. I don’t worry about money. I know that if there was an emergency, more than likely our emergency fund would cover it. I know that when I need new tires, the money is in the envelope. I also love when Christmas rolls around, I don’t have to stress about where we are going to get the money to buy gifts, it’s right there in the envelope!

If you don’t currently have a budget, I recommend instead of setting a budget right away, sit down at the computer and look at your checking account, print out the budget form and write down how much you are currently spending and fill it in that way. You will see if you are over spending and in which category. Then you can make the next month’s budget based off of the information you have and see where you can cut back.

I hope this helps! If you have any questions, feel free to comment and I’ll reply! 🙂


One thought on “Budgeting and The Envelope System

  1. you are amazing.. This has been in my heart for awhile and I didn’t know where to start.. THanks so much now I know where to go..

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