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Ask Dave

A Governor On Their Spending

Rebecca wants to know what Dave thinks about borrowing cash from other envelopes and what to do with leftover cash at the end of the month.

QUESTION: Rebecca in Atlanta and her husband have a healthy income but not much in savings. They’re taking Financial Peace University now and are trying the cash system. Rebecca wants to know what Dave thinks about borrowing cash from other envelopes and what to do with any leftover cash at the end of the month.

ANSWER: To start with, your envelope system needs to be part of but not the entire operation of a written budget. You’ve got to do a written plan. You cannot live on just pure cash. You won’t do it. You’ve got to do a written game plan for your whole world, or the cash system is a façade. It’s not really going to move the needle for you because it’s not the only area where you’re out of control.

Overall, if you’ve got a written budget and part of that is you’ve got $X allocated for entertainment, and you’ve got money left over in entertainment or you want to borrow money from entertainment and move it to another category—whether it’s in cash or not, you simply have to have an emergency budget committee meeting and say, “We have extra money in the entertainment budget. We’re running short on food, so I want to move $100 over to food. Is that okay?” Once that’s approved by both of you, then you make that move. Whether it’s done with zeroes and a pencil on a budget or whether it’s done in literal cash is okay with me. Borrowing and then saying, “Look what I did,” later in any category is not okay. You’ve got to get on the phone or sit down at the kitchen table and go, “Look, this is running short.” Otherwise, you might as well just carry one big envelope. What’s the point? There’s no point in having it divided up if the money’s going to jump back and forth without a governor on your spending.

It’s not much fun, but being broke isn’t, either, and this sense of disgust and aftertaste in the back of your throat when you say, “I make this much money, and I’m broke”—that’s worse. That’s what I came to. I came to, “I’m so disgusted with me, I’m willing to go through some discomfort to straighten my mess up.” That was 20 years ago, and I’m really glad I did.

The last thing is, what do we do with money that’s left over in an envelope or left over in a category? Depending on how much it is, if it’s a little bit of money, let it roll over to the next month. If you’re $20 over on your food, you may be $20 under next month. If it’s over every single month, then you’re allocating too much to that category. You need to change your allocated amount. The more you do this, the better you’ll get at it. Your first month is kind of a guess. Your second month is a little bit more scientific. Your third month, it actually starts to work a little bit. But if you constantly have $100 left in that category, then you’re overfunding it. That’s some categories. You need to kind of assess with certain categories, “Is this a category we should be spending through each month?” Or, for instance, clothing—a lot of people don’t buy clothing every month, but they allocate money to that, and so it kind of stores up in the envelope so when I do go clothing shopping two months into my deal, I’ve got two months’ worth of clothing money to do that with. That’s very reasonable to let that money roll over. I would not shift it to the blow category ever. If I had money left over in the envelope, I would shift it to something that mattered more, or I would let it roll over to the next month. If it’s constantly over, again, you need to adjust the amount you’re allocating to that category.