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Ask Dave

Too Many Envelopes Adds Confusion

Ryan says his budget has 40 line items. Should he have an envelope for each of those? Dave says no.

QUESTION: Ryan on Twitter says his budget has 40 line items. Should he have an envelope for each of those? Dave says no.

ANSWER: Goodness gracious, no! Do you pay your electric bill in cash, son? No. My electric bill comes out of my checking account automatically. Does yours? That’s the easy way to pay your utilities. What about cable? See, there’s two line items right there. Anything that you’re going to mail as a check or pay online or have automatically drafted—all those kinds of things—then obviously you don’t need to have an envelope for those.

We use about four or five envelopes in our house. We have a clothing envelope for Sharon, and it’s a good one. We have an entertainment envelope. We have a food envelope, which is a good one. I like that one. I used to carry a gas envelope until they started taking debit cards at the pumps, and I’m too lazy to walk in, so I use the debit card now. In other words, we have envelopes for a few things.

The envelope system works like this: You put in the envelope for food the amount you’re going to spend on food in cash, and you don’t buy any food anywhere except from that envelope. And you don’t buy anything out of that envelope except food. If the food envelope starts getting a little dry and there’s only $20 left in there and you’ve got two days before payday, you don’t go out to eat and spend $50 because you don’t have $50. You have $20, and you need to eat leftovers tonight.

We’re limiting our spending. We’re finding out money is finite. There’s only so much of it. It’s a limited quantity. When it runs dry, you stop. You don’t stop eating, but you eat something you’ve got already. It changes your habits because you’re spending cash. It’s the same thing with clothes. How would you like to buy clothing and have no guilt? Have an agreed-on amount in an envelope for clothing. As long as the money is spent on clothing, I don’t care if you buy one dress or 5,000 dresses with that amount of money. That amount of money was already spent when I put it in that envelope as far as I was concerned. It keeps you from overspending some of your categories. But these are mainly categories where you’ve left home to do the spending. You’re in a restaurant. You’re in a grocery store. You’re in a clothing store. You’re out for entertainment. Those kinds of things are the ones where you overspend a category because you can’t track it on the spot at the moment. That works fabulously.