Photo by Fransesca Pageo

We use cash for most of our day-to-day purchases.  A lot of this has to do with where we’re currently living – not as much is online, and not many mom-n-pop stores here take plastic – but even stateside, we rely a lot more on cash than on plastic.  I’m not here to debate the security issues of using a debit card versus cold hard cash (maybe I’ll dip a toe in that water one day), but overall, I can positively say that using old-fashioned cash with the tried-and-true envelope system for everyday purchases works well for us.

The Benefits of Cash

• You can’t spend money you don’t have. Many bank accounts provide overdraft protection, so even with a debit card, it’s easier to go over your account balance than you think.

• You’re more aware of what you’re spending – if you’re using an envelope system, that is.  Yes, it’s unbelievably easy to let cash slip through your fingers when you’re not paying attention to it.  It can be slightly easier to keep track of purchases with a bank statement.  But if you’re willing to keep a daily record of what you’re spending, it’s not hard to keep track of cash at all – and you save money in the process.

• It hurts more to spend cash, so you don’t spend as much. I’ve heard Dave Ramsey say this before, and I think it’s true – it’s a bit numbing to swipe your card at the store.  But it’s more painful to pull out a wad of 20-dollar bills to pay for those jeans.  You’re more likely to think through your purchases, and therefore, not spend money where you just don’t need to.

An Envelope System, Simplified

Here’s how we create our envelope system.

(Note: my husband receives his salary just once monthly, so we have a pretty cut-and-dry monthly budget.  If you get paid every two weeks, it would probably be easier to create a workable system where you fill and spend envelopes according to your paycheck.  In other words, work with your cash flow, not with a system that you think you should have.)

1.  About a week before the new month, we create our next month’s budget (we use Pear Budget).

2.  When our salary hits our account (and we can predict down to the hour when the money will appear), we act immediately.  Basically, on payday, one of my household management tasks is our bank accounts.

3.  I look at our monthly budget, and total how many of those categories we’ll spend in cash.  That’s how much money we need to withdraw from our bank.

4.  I leave a couple hundred in the account to serve as padding for bank and bill mistakes (and for us, we also need padding for fluctuating exchange rates).  I also make sure to leave enough money for our online bills and expenses.  But then, I go ahead and withdraw enough cash to fill our envelopes, right then and there.

We fill our envelopes with the cash needed for each of these categories (which we figured out when we did our monthly budget).  When the cash runs out, that’s it for that category.

Photo by velo_city

Keeping Track of it All

Let’s say I need to hit up the grocery store for my regular weekly trip.  I take a generous amount of cash from the grocery envelope (though not all of it), put it in my wallet, and head to the store.  If I’m not replenishing an enormous amount of groceries, I keep a general till in my head as I shop; otherwise, I pencil in a rough amount on my grocery list.  I usually round up, to be safe.  The reason I don’t put the exact amount down to the cent is because I’m rather an idiot at math – I keep it simple so that I can total it up in my head.

Because I’ve kept track of my grocery selections, I’m confident of my estimated total as I head to the register.  I pay in cash, and I immediately label the receipt “groceries” before putting it in my wallet.

When I get home, I empty my receipts and put them in our designated spot near the front door. As I mentioned in my ebook, we have a landing spot for things like keys, sunglasses, and shoes by the front door.  Well, we also have a receipt dump.

Once a week, I take all our receipts, which are (hopefully) all labeled with our expense categories.  I then enter them in to our Pear Budget account, complete with appropriate tags to keep track of our categories.  And of course, I also enter our online expenses and income, too.

Spending Money

You might remember when I described how we create our zero-based budget that we specifically have categories designated as free spending money.  It’s not much, but both my husband and I each get a set amount each month to spend on whatever – coffee is usually my purchase of choice.  We put this money directly in our wallets, and we make sure to keep that separate when we have money from another envelope. When our spending money is gone, it’s gone until the next month.

A Few Answers to Predictable Questions

Q: Are they real envelopes?

Pretty much.  They’re plastic zippered pencil pouches, and we keep all of them together in a basket on our desk.  They’re labeled with each of our categories:

• groceries – this includes anything we’d get at the grocery store, such as toiletries
• household – this is different from one month to the next, but it includes things like a new bath mat, or a printer cartridge, perhaps
• public transportation – metro, bus, and taxi fares (it’d be the equivalent of gas for those of you with cars)
• dining out & family fun – restaurants, movie rentals, perhaps a fun treat for the kids, like a trip to the zoo

Photo by no feeling

Q: Do you carry around a ton of cash?

No.  We leave our cash at home, and take it with us when we’re purposely going out to spend the money.  Yes, there are times when we’re out that we need to make an unexpected purchase – but it’s not often.  An envelope system curbs our impulse purchasing power, which is one of the real benefits.  But when it does happen, we either use cash from another category, then adjust accordingly when we get home; or we use our debit card, and label the receipt with that category name immediately before putting it into our wallet.

Q:  What about unexpected things?

Real life happens, of course, and there might be times when we need more grocery or transportation money than we thought.  In that case, we juggle money around from the other envelopes.  It’s good to stay flexible, but the money has to come from somewhere.  As much as I’d like it, my superpower is not making money magically appear, and our family doesn’t use credit cards.  It’s only logical that if we need more grocery cash, then we either need to make more money, or take it from another category.

Q:  What if you spend money on more than one category at the same store?

I don’t split hairs over it – I just spend cash for one purchase, then make a note on the receipt of what was from a different category.  For instance, if I bought household supplies at Target, and while I was there I bought a DVD for our family, I simply tick the DVD on the receipt as “family fun,” and enter that separately on our budget record.  I’m hoping that Pear Budget will soon be able to split receipts into multiple categories, like the painfully overloaded Quicken.

I know that in this digital age, spending cash is almost considered a faux pas.  That’s okay with me, though – we spend less money when we do, and that’s more important.  We’ve never lost the money, and since the envelopes are only for a few spending categories, it’s not as much money around our house as you might think.

Thanks to ING Direct’s incredible ability to create umpteen jillion accounts for free, we pretty much use the envelope system for our online purchases as well.  The system is called sinking funds, and we have individual online savings accounts, all with ING, labeled things like Christmas, clothing, and giving.  As we spend money online from our checking account, we simply transfer the exact funds from the appropriate savings account.  It’s beautifully simple, really.

Do you use cash for anything anymore?  If so, do you use an envelope system to keep track of it?  What’s worked for you? I’d love to hear.

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• Keep Your Spending Tidy With an Envelope System
• 5 Ways to Dramatically Improve Your Finances . . . Beginning NOW
• Family Finances: Our Modus Operandi

Here’s how we handle the family finances in our home.

Photo by Teng Tan

Our Basic Structure

• We keep track of all our spending with a monthly zero-based budget. I’ll explain the basics of this type of budget tomorrow, so be looking for it!

• Together, my husband and I decided that I would be the one to manage our finances – which includes making a budget, tracking our spending and our cash, paying our bills, and generally staying “in the know” with where we are. We saw this as a good fit to my job as home manager, and between the two of us, I have more of the personality for it.

1. Planning for the Month

• About a week before the new month, I create a first-draft budget.

• My husband and I have an oh-so-romantic date on our balcony with coffee and dessert, and we look over this budget draft, line by line. Together, we tweak it.

• I edit the first draft, we make sure this new updated budget is solid, and I print it. It goes in my Home Management Notebook.

2. Telling the Money Where To Go

• When we receive our income through direct deposit (our main salary is paid once monthly), our money is automatically sifted into proper accounts – set monthly amounts go into various sinking funds at ING Direct. We’ve set this up at the bank, so it’s automatic – we don’t even need to remember to do it.

• We withdraw the cash needed for our various categories where we are cash-only, using the classic envelope system. I’ll write how we do this soon.

Photo by Leah

• Money goes into its respective envelopes (literally, a small zippered pouch, like what you’d use for pencils in grade school).

The only exception to this is our personal money, which goes straight into my husband’s and my wallets. This is the money we use for whatever we want, be it a frappuccino or a Squeasy Tea Bag Squeezer. Having a set amount of personal money helps us enjoy living on a budget.

3. Paying For Stuff

• Most of our bills are paid electronically and automatically. This never surprises us, because 1. it’s always done on the same day, and 2. we check our bank accounts online almost daily anyway.

• Any time we make a purchase, be it with cash or debit card, we jot a little note on the receipt that labels it as a purchase for a particular category – groceries, clothing, gifts, and the like.

• My husband and I both make a point of emptying our wallets of said receipts when we enter the house, and we toss them into a little bowl by the front entrance.

4. Keeping Track of the Spending

Photo by JoAnne Oullette

• Once a week, I take these receipts and enter them into our fabulous online budgeting system (which I’ll tell you all about soon!). In this program, I tag them with their respective categories, and money is deducted from each budget category. I make sure any cash remaining in the envelopes reflect these numbers.

• Oftentimes, we’ll need to tweak our budget – and that’s okay. Yes, it’s set in stone, but it’s more like limestone than granite. We can chip away at it when things change throughout the month. If our weekly dinner out cost $25 instead of the allotted $20, we take five dollars from somewhere – clothing, or groceries, perhaps. But the important thing is to shift money around, not hope money magically appears. If you’re short five bucks, then take five bucks from another category. Not from thin air.

• Unless the item is a major purchase, I throw away all receipts at the end of the month. I used to keep them all, as though I would one day need that receipt for a pair of socks I bought in 1997. No longer. It minimizes stress, clutter, and time needed to find important things.

This is about it, in a quick breakdown. It might sound complicated, or really time-consuming, but it’s not at all. I’d say the important keys to doing our finances this way are:

1. We agree on all our money decisions together.
2. Every dollar has a name – which is foundational for a zero-based budget.
3. We keep track of it regularly, so that it only takes a little bit of time each week, instead of painfully slow hours once a month.

How do you manage your family’s finances? Are you the one who does it, or is it your spouse? What’s the hardest part about dealing with money?

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• Plan to Eat - meal planning made simple.
• The Justice Conference - Justice hangs by a thread.
• Lil' Soak - Sewing hope with handmade goods.
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• Family Finances: Our Modus Operandi
• The Basics Behind a Budget that Works
• 4 reasons I use cash instead of a credit card (& a giveaway!)

As I mentioned yesterday, we’ve started giving our three-year-old daughter an allowance in exchange for simple household chores.

Photo by Michele Catalano

I know that $2.45 weekly isn’t going to buy much more than M&Ms or a bouncy ball. But that’s not the point. The point is, we want our kids to start learning how to manage money early.

I’m a Dave Ramsey-ite, but this idea is not trademarked by him. The basic concept of giving, saving, and spending has been around for generations, and we want to keep it that way in our family. The sooner our children understand that our money is given to us by God, and that out of thankfulness, we give some of it back, the easier it will become a lifelong habit.

Saving money likewise requires discipline, and to practice the art of paying yourself first, even from the 17 nickels like we did last week, will reap benefits that far outweigh whatever could be bought with 1.7 coins.

So when we give our daughter her allowance (or commission, or whatever you want to call it), we count the stickers on her chore chart, and then count out the same amount of nickels. We then tell her how much goes into the giving jar, and how much goes into the saving jar. The rest goes into the spending jar.

Her spending money can go towards whatever she wants. That means that yes, if she’s in the grocery cart and she wants those gummy bears, she can buy them if she has enough money. But it comes out of her spending jar. (A side note: Of course we take care of her needs, and yes, we buy her gifts from time to time. Not a lot, but we aren’t expecting our three-year-old to fend for herself financially. That would be nice, though, wouldn’t it?)

We haven’t used this system long enough to really see the longer-term benefits, but friends of ours who use this method have nothing but good things to say.

There’s a guy in his mid-30s from our church back in the States who bought his family’s Suburban with 100% cash from his childhood allowance. We don’t really have those kind of expectations for her giving and spending goals, but again, the account balance is not the point. The point is cultivating a habit in preschool that’s hard for grown adults to do. Hopefully, her heart will follow.

Isn’t that a great gift to give your kids? It really is all about changing your family tree, one small thing at a time.

How do you work out money with your kids?

CURRENT SPONSORS:

• Plan to Eat - meal planning made simple.
• The Justice Conference - Justice hangs by a thread.
• Lil' Soak - Sewing hope with handmade goods.
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• A Preschooler’s Allowance
• Allowances: Teaching Teens How to Manage Their Money
• Q&A: Can beggars be choosers?

This giveaway is now closed.  Thanks for entering!

To those of you hopping over from Bloggy Giveaways – welcome to Simple Mom!

For this season’s Bloggy Giveaways, I’m giving away ONE reader one of my favorite books, The Total Money Makeover by Dave Ramsey. Since this blog is about simplifying the job of home management, I can’t help but recommend Dave’s financial philosophy, plan, and products. He can’t get much simpler when it comes to personal finance! I highly encourage you to follow his ideas for your family’s financial game plan.

Hence – I’m giving away the book.

The “fine print”:

• To enter, leave a comment at this post. In your comment, tell me your all-time favorite dessert. (And you’re crazy if it doesn’t involve chocolate.)

• Be sure your comment is linked to a valid e-mail address.

• To be entered twice, subscribe to my feed, then leave a second post telling me you’re a new subscriber.

• You have until Friday, April 25 at midnight Pacific Standard Time (U.S.) to enter.

• All entries worldwide are welcome! I’m willing to ship to my fellow non-U.S. residents.

• I’ll do a random drawing and announce the winner here on Simple Mom on Saturday morning, April 26.

If you’re new to Simple Mom, I encourage you to take a look around, contact me if you have any questions or thoughts, and subscribe via RSS or e-mail!

CURRENT SPONSORS:

• Plan to Eat - meal planning made simple.
• The Justice Conference - Justice hangs by a thread.
• Lil' Soak - Sewing hope with handmade goods.
• Treed - A simple, flexible, effective project planning tool.

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• Free Giveaway: The Total Money Makeover!
• Who Doesn’t Love a Jewelry Giveaway?
• Giveaway from Just Ask: Canon EOS Rebel DSLR Camera & Lens Kit

I’ve written a guest post today over at Bible Money Matters.  It’s part of my series here on Dave Ramsey’s Baby Steps.  Go check it out, if you’re so inclined.

CURRENT SPONSORS:

• Plan to Eat - meal planning made simple.
• The Justice Conference - Justice hangs by a thread.
• Lil' Soak - Sewing hope with handmade goods.
• Treed - A simple, flexible, effective project planning tool.

© 2008-2012 Simple Living Media, LLC | All rights reserved - This feed is provided for the convenience of Simple Mom subscribers. Any reproduction of the content within this feed is strictly prohibited. If you are reading this content elsewhere, please contact hello@simplemom.net to let us know. Thanks.

• My Guest Post – The Beauty of Sinking Funds
• Personal Finance 101 – Dave Ramsey’s Baby Steps
• Personal Finance 101 – Saving For Retirement