be the dollar’s boss
Probably the single most important part of the Dave Ramsey plan is building a written budget. This is by no means some unique genius idea of his - it’s really just more of that “common sense” stuff we all hear about from time to time. Unfortunately, I don’t think very many people make budgets anymore - or, perhaps people make them but they just don’t live by them.
I think part of the cause of the decline in budgeting is due to the rise in popularity and convenience of using plastic. Prior to credit and debit cards, the only way most anyone spent money was with actual cash or a checkbook - and checkbooks have those spiffy ledgers built right in them so you can track how much you are spending at the moment you write the check. Credit cards don’t have ledgers.
We are constantly moving towards a cashless society. Some of this is fueled by the credit card and retail companies who would rather you didn’t know how much you were spending. Mostly, though, it is driven by us - the consumers. We like things easy. What’s easier than handing someone a little plastic card? You don’t have to do any math, write anything down, or carry around a wad of cash. Using plastic is quick and easy - but it moves the management of money from a mechanical, physical process to a purely abstract one. For a lot of people, if they don’t see it - it isn’t real to them. That’s a problem.
Dave Ramsey is a huge advocate of the envelope system because it keeps the money real and physical. It works like this: Each time you build your budget, you withdraw the actual cash needed for most of the categories in your budget and put that money into an envelope labeled accordingly. So for example, if you have a $50/month entertainment budget, you’d create an envelope labeled “Entertainment” and put $50.00 cash in there. If you’re going to head out to the movies, you take the entertainment envelope with you and pay for the tickets using the cash held within. Any change returned to you by the teller gets put back into the envelope for use another day.
The envelope system is simple and it works. It does have some drawbacks, though. One common concern is that people don’t like to carry around a lot of cash or become known for carrying around a lot of cash. They feel this could make them a target for a mugger or some other unsavory folk. Another potential problem is dealing with the possibility that you didn’t bring the proper envelope with you when you suddenly find yourself in a different situation than you had planned on being in. (For example, you ran into some friends and decided to go eat with them. You have the money in your budget - that’s not the problem, but the problem is that you didn’t bring any of your cash because you were just heading to the post office to mail a letter. Now you have to go back home and get your envelope - or risk the dangers of using that credit card you haven’t cut up yet…)
Melody and I came up with a slightly more modern approach to the envelope system that is in some ways more convenient - at least for us. When we write up our budget, we also write down the totals in each spending bucket on recipe cards that have been cut down slightly so they fit into a wallet without needing to be bent up. Each card has a title on the top like, “Entertainment” or “Eating Out” and then under it the current total is written. I have all of the main cards in my wallet (since we basically do almost everything together owing to the fact that we only have one car…). She keeps her own allowance card with her, though, so she can buy snacks or whatever when she’s on campus. (I just leave mine in my wallet with all the other ones - I like to think of my allowance card as my “Starbucks card”…)
Rather than withdraw a bunch of cash and stuff it into envelopes, we leave our cash in the bank and use our debit cards for virtually everything - just as we had become accustomed to. Each time we make a transaction, we pull out the proper card and do the math for it right there on the spot - just like balancing a checkbook. The old balance is crossed out and the new balance (minus the purchase cost) is written down below it. If we wanted, we could even make notes about what we bought and where - but we don’t get that detailed. (We usually round the values up to the nearest dollar to make the math easier.) We track the money that’s left in each budget. If the money total on a given card reaches zero (or less than the cost of what we want to buy), we can’t buy it (or else we have to steal from a different budget card, depending on circumstances).
So far, this system has worked very well for us and is, perhaps, a little more “modern” than the envelope system. It’s not quite as simple since you have to do a little math and a little writing, but that’s good for the brain anyway. (You could always carry a small calculator. I wonder if any tiny, thin wallet-sized budget calculators with little memories in them exist? If not, they should…) Another nice thing about this system is that if you have your income being automatically deposited into your account, you don’t have to find a bank or ATM and withdraw any cash - it’s all where it needs to be. Just fill out the cards and spend accordingly. What could be easier?