So, what goes in those envelopes? Here's a solid answer: it depends.
Wow, aren't you glad you read this post?
Seriously, it all depends on what you want to put in the envelopes. My wife and I probably have more envelopes than many families, but we have a good reason. We would rather the money for certain expenses build up in an envelope that is earmarked for a certain item than be "spendable money" in our checking account. Keep in mind that we are serious about getting out of debt. If there is money in our checking account, we're very likely to spend it on our next debt. Then what happens when it comes time for an oil change? Uh oh!
Here are the items for which we have envelopes:
- Groceries and other "regular" items. We include diapers, formula, cleaning supplies and toiletries in this envelope because we buy all these things at the same stores. We also put coupons in this envelope.
- Life Insurance. We pay every six months, and our premium is low, but we still like having the cash available. We just put a small amount in an envelope each month and then, in June and December, there it is!
- Eating Out. We don't eat out anywhere near as much as we did before we starting using an envelope for this item. Admittedly, this is the envelope we "cheat" on the most, but we are also improving here. We basically put enough money in this envelope for 1 "sit-down" dinner and 2 fast food meals each month.
- Hair Cuts. Neither one of us spends much on hair cuts (which is an advantage we have over many families financially!), but the money still needs to be available when the hair needs a trim.
- Termite Bond. This is the type of expense that can creep up on you and kill your budget. We don't pay monthly on this, but it isn't cheap when the bill comes due. Much like life insurance, we like having the money there in cash when we need it.
- Dry Cleaning. We don't do a lot of dry cleaning, but, well, I'm a preacher, so those suits and sports coats have to be cleaned. This is a very small amount of money, but it's always available in our envelope.
- Car Maintenance. This is, by far, the hardest envelope to figure out. We make sure to have enough in there for oil changes, new air filters, etc., but what about those "big" things, like when the transmission fails? You can't budget for those things. The best piece of advice I can give it to use the money in the envelope for regular maintenance, then just know that there will be other, bigger, stuff happen. This is one thing your emergency fund is for, if needed.
- Birthdays/Gifts. We are lucky. Our family doesn't "overspend" on birthdays, but we do have several. These need to be budgeted. Also, we have baby and wedding showers and anniversaries to think about. And, yes, this money should be enough to pay for both the gifts and the cards. Don't let Hallmark break your budget.
- Christmas. We budget for Christmas year round! We put away a little each month in an envelope, then, when it's time to shop (after Thanksgiving, Amber), we have plenty of money to get everyone a nice, but not-too-fancy, present.
I told you that we had several envelopes. Many people choose not to have so many, but we have this many to protect us from..."us!"
What items do you budget with envelopes, and why?