Friday, September 9, 2011

10 Little Envelopes that Changed my Life

I've always been interested in personal finance-reading financial books, making budgets, tracking all my expenses for years-basically nerdy stuff like that. But my casual interest changed to a mild obsession in Winter 2010 when in a 6 month period I lost almost my entire savings (I had $400 left) to buying a new (to me) car, repairing that car, IRS taxes and medical bills. While I've always been pretty good about staying on budget for monthly expenses, I never had to worry about saving specific amounts each month for those expenses that aren't monthly like car insurance, for example. When those expenses or other emergencies came up, I just dipped into my savings, paid the bill and thought nothing of it until I didn't have a savings to dip into anymore! That's when I came across Dave Ramsey. I had heard of his Financial Peace course and thought it sounded like fun (did i mention I'm a nerd?) but since I knew the class focused a lot on getting out of debt, and thankfully I don't have any debt, I decided it wasn't for me. So instead I got several of his books at the library (for free!) and read them. I learned 2 great things that changed the way I save & spend:

1. I itemize my savings to save for non-monthly expenses- Dave Ramsey's books encouraged saving each month for non monthly expenses so I created my own system to do that. I have a spreadsheet where I break my savings into the following categories:

Emergency Fund
Car repairs, Registration, Oil changes
Car insurance
Medical Bills
City taxes
Trips for my 30th Birthday
Charitable Giving

Once a month I update these categories based on how is in my savings account at the time. I only update this after my fixed expenses like rent, cable, cell phone, health insurance & my tithe are paid for for the month. For certain expenses like taxes or car ins. I save a fixed amount each month. But in other categories I save varying amounts based on how I make the previous month (I'm self employed & my income varies). Throughout the month if I pay a bill from any of these categories I subtract it in my spreadsheet. I love being able to know exactly how much money I have in each category and I never have to stress or worry when bills come because I know the money is there to pay them

2. I implemented Dave Ramsey's envelope system for my monthly expenses- I have 10 envelopes in the following categories:

Restaurants/ Starbucks
Co pays
Over the counter medication
Regular Monthly Prescriptions
Hair color/ Eyebrow wax
Gifts ( Christmas, birthdays etc)

At the beginning of every month I go to the bank and get out cash for each of these categories & put them in my envelopes and that is all the money I have to spend in each of these areas for the entire month. It's great because I'm not having to constantly withdraw money at the bank or worry if I'm spending too much on eating out or medicine for the month. Like my savings, my envelope amounts (except for gas & prescriptions) vary based on how much I made the previous month.

I've been doing these 2 simple steps for 14 months and my savings has grown from $400 to almost $5,000. It's truly a blessing and I am so thankful to God for putting Dave Ramsey's books in my path & disciplining me enough to follow through. At the end of the day this money is not mine at all but a gift from God that I pray each day that I am a good steward of.

So what about you? Do you have any neat tricks for saving money & spending it responsibly? I love being able to learn from the experiences of others.

To Purchase Dave Ramsey's books:

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