Saturday, October 4, 2008

Thoughts About Trying the Envelope System

Let me tell you, I read a bunch of great articles today. You financial bloggers are awesome - always keeping me thinking! I am going to try to comment separately on each one of these that got me fired up. This one I found over on a compilation of links at Frugal Dad's blog. This article by Simple Mom is entitled "An Envelope System Helps You Keep Track of Expenses."

I would guess that we have all read about envelope systems before. Financial folks have been talking about this one for a long time. I remember my mom paying her groceries out of an envelope from the bank she kept in her purse. It wouldn't surprise me if she still did. I like how Simple Mom goes through and explains things clearly and shows how this system works for her.

I've been thinking about this a lot, especially in certain areas - as I have said, a couple of my budget items have gone over a few months in a row. I am trying to solve this problem by adjusting my budget to make it work with me (rather than against me) but I'm wondering if a cash system wouldn't work out well for those types of variable purchases.

I am thinking specifically of groceries, entertainment, dining out, home improvement, and that crazy catchall - "Misc." Here's my issue though, while I plan my budget monthly, my finances are on a rather strange schedule. I get paid on the 7th and 21st of each month. Most of my bills are due at the beginning of the month, so the lion's share is paid by my first paycheck and what is left in my account from the second paycheck. The second paycheck doesn't pay for much at all, I only have a few bills due at the end of the month, so it rides over to pay the following month. So where do I take the money from? My home improvement budget is $50. Do I take $25 from each paycheck? But what happens if I need to buy a $30 part? I could try taking the money out on the 21st and just holding it until the 1st of the next month, but I would rather have it sitting in my bank on the 30th to get interest. (I do get 5% on my checking account after all.) I could take it out on the first, but then everything else is due then too.

Hmmm.... this is going to require more thinking.

1 comment:

Catie said...

I always had trouble with this too. The answer for me is to get a month ahead. Easier said then done I know (I happened to have a high-paying freelance gig), but I now pay for my November budget with my October paychecks, etc. It takes all the worry out of the question "Which check?" It put me a little behind on building my emergency fund, but the reduction in worry is heaven!