The cornerstone of the Dave Ramsey budgeting system is the cash envelope system, but when you are going from swiping a debit card and praying you can shuffle money into the account before the charge clears, it can be confusing to switch to cash. How do you come up with the cash to put in the envelopes? Which paycheck do you take it out of?
Even though I was somewhat of a veteran of Financial Peace University, I had a hard time transitioning into cash only. We don’t make enough in one paycheck to fund all of our envelopes AND pay the bills that needed to come out of our account, plus I have an irregular income. At first I thought we could start with a few categories and work our way up from there. Well, if you have done the Dave Ramsey system you know that you either do it, or you don’t.
After some trial and error, we found a system that worked, and worked well. We are on month 2 of strictly adhering to the Dave Ramsey budget, and doing cash envelopes, and we are gaining a lot of traction on our debt snowball! So if you have had trouble transitioning to cash for the same reasons, hopefully you will find some of these tips helpful
First, you need to figure out what you make in a month. You can’t tell each dollar where to go if you don’t know how many there are! If you have an irregular income (we do!) average out what a lean month looks like for you, and budget based on that number. Dave recommends that you draw a “line” between necessities and non-essentials, and fund accordingly. Dave has an irregular income budgeting sheet, but for some reason I could never get this to work for me. I don’t know if I didn’t truly understand it or what, but making my own sheet based on the same principles has worked out much better! I, of course, added mine to my bullet journal, and this is what it looks like:
I started by writing out all of our expenses and bills in the order they were due. Then I wrote a list of things we would fund with cash, like groceries and gas. I wrote down the dates my husband got paid, and first wrote down the bills. If there was money left over after his estimated check amount, then I would write down envelopes that we would fund out of that check. For things like food and gas, I divided them in half so we could have cash to buy food at the beginning of the month, even if we didn’t have enough money to fund the entire month.
I went through the entire month like this, and got a basic skeleton for our budget. When he would get paid I would go to the bank and get out the exact amount of cash that we were planning to fund from that check. Plan out what denominations of bills you will need, and make sure you go to the bank and get the cash in the envelopes on day 1. If you wait, you will end up swiping your debit card for a purchase, reasoning that you will reconcile the cash later, but if you were that great at handling money, you wouldn’t be in debt! Making sure you have the right denominations is important for basically the same reasons. I used to go to the ATM to get cash, but since it only gives $20 bills, I wasn’t able to fully fund envelopes for $30 or $50. I would borrow from one envelope to try to break a $20 for the other, and ended up spending the money before it was returned. This is about changing behavior, so GETTING the cash and USING it are vital.
At the end of the month if we have extra money, it goes straight to our debt snowball. And this is another thing you will want to do immediately! Get it out of your bank account and thrown at your debt before it disappears. And you all KNOW what I mean by that!
After figuring out how to do cash only, and getting our budget down on paper, we are getting traction on our debt, and quickly!
We are using the Dave Ramsey envelope system that came in our Financial Peace University kit. I love that you can balance the amount of cash you have in each envelope, just like you would a checkbook. There aren’t enough envelopes for all of our categories, so we do talk a few extra envelopes into the pockets. This envelope system stays in our safe, and then when we need to spend money we put it in our wallets. For certain things like gas and groceries I may carry some cash on me at all times just in case. Because of this I use a coupon clutch wallet. This has separate compartments that I was able to label for each category, as well as a place for change.
I think starting on the envelope system is a bit of a learning curve, but I can’t stress enough how it has changed our financial picture. If you would like to read a little more about the envelope system and Dave Ramsey’s Financial Peace, you can read my sister’s story about completing the entire program, or our experience with taking Financial Peace University.
Do you use the envelope system? I would love to hear your thoughts in the comments!