Why The Envelope Method for Budgeting Doesn't Work for MeKathleen Celmins
There are many different ways to set up a budget. Today, we’re talking about one that works for many people, but not for me: the envelope method.
What is the envelope method for budgeting?
The idea goes like this: after you pay all your fixed bills, you take out cash and put it in different envelopes. You put gas money in the gas envelope, grocery money in the grocery envelope, entertainment money in its own envelope, and so on.
Let’s say you’re going to spend $400 on groceries this month. You put $400 into your envelope, and on your first trip to the store, let’s say you find deals and decide to add more rice and beans to your family’s diet in lieu of meat. Great!
Now, let’s say you do that for your subsequent trips to the store, and at the end of the month, you’re at the grocery store, with a cart that has $50 worth of groceries, but you have $100 left. What do you do?
Ideally, you take that $50 and let it carry over to the next month.
But that’s not how it worked when I tried the envelope method. The last $50 went to all the naughty things at the grocery store: stinky cheese, dark chocolate, and of course, a few bottles of wine.
The other reason the envelope method doesn’t work for me has to do with what I value. It costs $35 to fill my gas tank, and let’s say my gas envelope at the end of the month has $20, but not $35. According to the envelope method, what you’re supposed to do is get only $20 worth of gas.
Somehow, it rubs me entirely the wrong way to have to go to the gas station twice!
When I was growing up, cash was for spending. I earned an allowance, that I was allowed to use in whichever way I wanted. I had a bank account, so I could always put my allowance in the bank. If I did that, it got saved. But if I didn’t? I’d spend it on candy at the corner store.
As I got older, my allowance grew to a whopping $20 a week (so too did my responsibilities — by 15, I was making dinner for the family five nights a week!). I noticed the same trend. If I took it to the credit union, I wouldn’t spend it. But if I put it in my wallet, or even my bedside table, it practically spoke to me, begging me to spend it.
Somehow, I have always seen cash as “found money” — meaning, money I should spend. And, oh boy, did I spend. When I tried the envelope method, I went to my credit union and asked for cash for each of my envelopes.
I knew it wasn’t going to be good because even when the teller was counting out my cash, I could feel my eyes bugging out of my head. The envelopes looked like those bags with the dollar signs on them from cartoons. I had visions of Richie Rich. What was I going to do with all that money?
What did I do? You guessed it. I made sure to blow through that money well before the end of the month.
My experience with the envelope method was a failure, but I learned something about myself. I am capable of conscious spending. But for me, conscious spending does not jive with spending cash.
If you’re like me, and you think cash only comes out of slot machines to be played with, then let me offer you an alternative: debit cards.
Credit cards should not be used when you’re getting out of debt, because when you’re bailing out a boat filled with water, you’re using buckets, but you don’t want to add back to that boat, even if it’s just a teaspoon.
But your debit card has a finite limit (unless it doesn’t, then we should talk!). I found that when I switched to debit cards, I had more money left at the end of the month than when I was using the envelope system.
And because I couldn’t see it, I wasn’t inclined to “treat myself” with cheese and chocolate. Instead, I put the “extra” toward my debt.
That made all the difference.
Image by anankkml