The Envelope System for Managing a Budget

Video Transcript

"Hi! This is Alfred on behalf of Expert Village. I don't know if Dave Ramsey invented the envelope system but he is the gentlemen who introduced me to the envelope system. Dave Ramsey's Financial Peace University system envelope system provides a simple way to manage your household income and expenses. It provides a easy cash management system that will almost allow you to spend more than you make. The envelope system can be implemented in a few simple steps. First you make your spending decisions ahead of time and by writing down your income and expenses. Dave Ramsey calls this cash flow planning and he goes into it in much more detail on this website and his classes. Next you need to determine for yourself which category food, gas, etc. will be used with the envelope system on a cash only basis. In other words, which expenses can be easily paid with cash. Using your spending decisions as a guide, decide how much money goes into an envelope designated for each cash budgeted item. The budget of money for groceries would go into an enveloped labeled food or groceries. As you need the money, take it out of the appropriate envelope and Mr. Ramsey really emphasizes this no where else. Don't take that money out of any other envelope. Keep a balance of your category on the outside of the envelope. You can use any old envelope or purchase special envelopes designed for this purpose from the Financial Peace University website. The envelopes are a great place to keep your receipts to help you track your actual spending categories. This system can be very successful for 3 key reasons. First when you spend cash, it hurts a lot more than using credit cards or checks. You end up spending less. Secondly cash can empower you. When you pay with cash, it is paid and that is it. You don't have to worry whether or not the money is in the bank or if you will be able to pay it off when the credit card bill comes in. And thirdly it is simple to stop spending money when your envelope is empty. "