I think my grandparents had some good ideas when they went through tough financial times and one of them was the envelope budget system. There’s something about handling actual cash that makes you, well, it makes you want to keep holding on to it. When times were tough, grandpa would cash his paycheck in smaller bills and bring it home where grandma would have the envelopes all set out on the table. While proper budgeting can’t always help you avoid bankruptcy, it can help you emerge successfully from bankruptcy.
There was an envelope for the house payment, one for food, one for car needs, one for shoes and clothes and one for emergencies. On each payday, a specific amount of cash went into each envelope so that by the end of the month they had the full house payment for the next month, money each week for groceries, money for clothes…you get the idea. If the envelope for clothing money was empty, guess what? You had to wait until there was enough in it to go shopping.
I’m not saying that this system made life lovely. I’m sure there was stress and heartache about things that had to wait, but they had a plan and they stuck to it. There was a sense of peace because they knew if they stuck to the plan, they would make it.
So, what can someone take away from this low-tech tool?
First: It worked because they stuck to it. You can use Mint.com or almost any other budgeting tool but it will only be as good as your ability to stick to it.
Second: Although I wouldn’t recommend keeping large amounts of cash at home, there is something to be said about handling money. It’s visual and touchable. When it’s gone…it’s really gone! We tend to be a little more conservative when we KNOW we have to make a budget work.
Third: Budgets can work. I know my grandparents didn’t have cell phone and cable bills, but a car was a necessity and it came with it’s own bills. Some had cars, some didn’t, but if you had one, you had to find room in your budget to take care of it.
Ideas to Use:
On your next grocery trip grab your calculator and your budgeted cash: Make your list as usual and estimate how much it will cost. Then, grab your calculator and go to the bank to withdraw that amount of money you determined you will need. As you shop, keep a running total on your calculator of your bill. Remember to allow tax for taxable items. As you shop, you may find yourself putting some things back as you see on your calculator that you have to make some choices to stay within your budget. The great news is that you won’t get that awful checkout-shocked when your bill is more than you thought and it feels like you just bought cheese and crackers. Also, you’ll feel the reward of being disciplined and the security of staying within your budget.
When my husband read a draft of this article, he asked if I ever actually did this. My answer: absolutely! There was a time early in our marriage where I had been laid off from a job in the defense industry and we literally could not afford surprise expenses. The grocery shopping budget calculator was a must for us.
Review your bank statements to make a realistic budget: When I worked in Human Resources, there was a catchy phrase that “Past performance is an indicator of future success”. Look through your bank statements. Highlight the different categories of your spending and see how much you truly spend. If you go to Jamba Juice (had to harp somewhere besides Starbucks – they get singled out every time) twice a week, don’t tell yourself that you’re going to drop the habit altogether. Instead, see if your budget can handle once a week or once every other week.
Find a “want item” to save towards: It should be something relatively small, but still rewarding. It could be a nice lunch out (lunch is usually ½ the price of dinner), a new scented candle, or a new wallet. Whatever it is, put a few dollars away each week for it so that when you buy it, you’ll feel rewarded for your hard budgeting work.
If you are struggling with your budget even with an envelope system, you may still need professional help. I am a little biased, but my husband Carl is a pretty good bankruptcy attorney. Call me at (619) 448-2129 and I will set you up with a free consultation with him about your bankruptcy options.