About a year ago, my husband and I took Dave Ramsey’s Financial Peace University class together. One of the things that this program recommends is a “cash only” envelope system for paying for your everyday expenses. I shared a little bit about our experiences with creating our budget in my Tip of the Day Tuesday post last week.
We budget from the 15th of the month through the 14th of the month, so this weekend, I was getting all of my envelopes ready for our new “month” and I realized that we had $150 combined left in our envelopes from the previous month! This was proof to me, once again, that the cash system really works! The timing was also great because I knew that this month was going to be a very “tight” month for us. We would normally take that $150 and put it toward our debt snowball, but this month, I left it in the envelopes and it was less money for us to have to come up with for this month!
In the Financial Peace University class, Dave Ramsey states that people tend to spend 12-18% more when using “cards” (this includes debit cards). Prior to taking this class, we had been using a “rewards” credit card. We were able to pay off the card each month, and we thought we were “saving” because we getting rewards back. Converting to a “cash only” system was not easy for us, but we decided to try it out and we have been surprised time and time again at how much of a difference it has made.
A few months ago, we decided to go back to trying to use our debit card. After one month of this, we realized the truth in Dave’s statement about people having a tendency to spend more money when they are using a card. When you are using plastic rather than cash, it just doesn’t seem as “real.” Even though we were paying off our card every month, we certainly weren’t making progress toward our debt reduction goals because we had NO money left at the end of the month.
When we are using cash, we have a tendency to re-evaluate the importance of some of our purchases. We also don’t carry all of our cash with us all of the time, so sometimes having to make a trip home gives us time to re-think things. In a way, it has become kind of fun to see how much money we can have left in our envelopes at the end of the month! The thing that I was most surprised by last month was that we had $50 left in our “eating out” envelope. This gave me the confidence to cut our “eating out” budget to $50 for the entire month.
Here’s what worked for us last month:
*Menu planning – Menu planning is a life saver. When I get home from work in the evenings, the last thing I want to do is try to figure out what to make for dinner. By having a “plan” ahead of time (and usually something that is already ready in the crockpot or something that I did prep work on before I left for work that morning), I wasn’t tempted to eat out. (This also helped out a lot with my New Year’s goal to lose weight!) I have cooked dinner for more than three weeks straight now!
*Not carrying all of the cash with us all of the time – When I go out to run errands, I only take the amount of cash that I think I am going to need. For example, when I go grocery shopping, I make a grocery list and I stick to the list. I would have to go home if I wanted/needed more money and sometimes, having to make that extra tip just isn’t worth it.
Have you blogged about your experiences using the envelope system? Do you have another Thrifty Thursday tip to share? Feel free to link up below!
For more Thrifty Thursday ideas, check out Coupon Teacher and Life as a Mom.