*This content was learned and applied from the amazing Dave Ramsey*
So, when it comes to getting out of debt, Chase and I stuck to this simple Envelope Magic each and every week. I can honestly say that this saved our bank account… Chase claims it kept my spending in check while still allowing me the freedom to buy “things” I “needed”.
How does this Envelope Magic work? Well let me tell you. If you take anything away from Financial Friday posts, have it be this!
Chase and I kept it simple. Each week, starting on Monday, Chase and I went to the bank and withdrew $100, so $50 each. This $50 is what we called our fun money, and it could be spent however we pleased. No judgment, no shame. The other didn’t get to dictate where, when or how that money was spent, though Chase would laugh at me when I spent all of mine on Monday.. oops! You could save it up over multiple weeks for something special, or spend it on IMPULSE buys, which is sadly where my money went most weeks. We called this our “50s.” What was so fun about this was we kept it in a separate envelopes away from other cash we carried.
Why did we use cash over tracking what was spent on our debit or credit card?
Because CASH HAS EMOTION TIED TO IT. Studies prove that when an individual pays with cash, emotion is felt.
It is a physical and tangible object whereas a debit card is “pretend money”. Yes, it is still coming out of your account, but we aren’t handing ANYTHING OVER WHEN PURCHASING…WE DONT SEE THAT MONEY DISAPPEAR FROM THE ACCOUNT UNTIL A LATER TIME WHEN YOU CHECK YOUR ACCOUNT.
Okay back to the envelopes! At the beginning of each month, we went to the bank and took out cash for 1)Fun Money, 2) Eating out, and 3) our 50s. Prior to going to the bank, we sat down looking at our budget and our previous spending using out Mint app and saw where were were overspending. We knew fun money/ actives and eating out were major areas we could cut back. Therefore, they earned their own envelope. For us, we put in $150 for eating out, $150 for activities, Rent money, and then pulled out our 50s. We took the cash out and placed that money in each labeled envelope. We placed them on our kitchen table and talked about the restaurants and actives we may want to do that month. We thought ahead and planned when and where we may need to use that money. Maybe we had a girls night or guys night, maybe a double date or two, after work happy hour, late night snack or movie. We were open with our friends on what we were trying to accomplish and therefore, when we declined going out or hanging with friends, they understood. We had debt to pay off!! Your friends will always support that and help think of other ways to hang without having to spend money!
I will be honest and say it took us some time to get the feel of how far the money in our envelopes would carry us. There were times we spent it within the first 14 days of the month. Let me tell you that we were so beyond bored when that happened. It sucked big time. But, it made us be smart with our decisions and like a puppy learns the lay of the land, we finally figured it out. We started to eat at restaurants that fit in our budget a little better. We would laugh and say we wanted steak and lobster, but we chose Noodle Express or Dominos Pizza instead because we wanted to be able to eat out at least once a week and knew if we went to a nice sit-down that we wouldn’t have much left in the envelope.
On the relationship side, I love how it brought us together. We would get creative and thought outside the box. We would go for a hike instead of happy hour. We would go play tennis instead of dinner out on a Friday night. We communicated even more because we had to agree on activities that we both were interested in. AND after we paid off our debt, we could afford fun trips!!
To sum it all up:
Step 1 – Decide what your budget should be for eating out and activities. Make sure it is below what you are currently spending! If you want to save, then cut back. You will survive this, I promise.
Step 2 – Get your envelopes ready
Step 3 – Go to the bank each month and fill your envelopes
Step 4 – Don’t cheat! When it’s gone, it’s gone. At least until you can refill it next month. No sneaking extra purchases with a card or pulling out more cash. Otherwise, what’s the point?