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Thread: Help (new to envelope system)
02-27-2011, 02:52 AM #1
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Help (new to envelope system)
Really want to make this work, we just started the DR baby steps and already funded our EF within approx 2 weeks by selling some stuff on craigslist.
Having just started this in Feb, we have divided out our bills into 12 months and are saving the according amount per month. Say car insurance is due in August and its $500, we have our budget set to pull $42 every month towards paying it etc, but since we just started this in Feb when August comes we are going to be short since it will only be 7 months of saving (next year it will work out fine due to the monthly draws for 12 months) but starting this process and having items due before the full 12 month cycles is kinda where we are stuck.
At this point we are just selling some stuff doing our best to recognize the temporary extra need to bring those envelopes up to the required amount by their due dates (knowing it won't be as hard for next year).
Our budget based on salary only is in the negative each month but we do make it up with commissions (its just irregular income), never fall short just doesn't come in at a set pace $ wise and some months are leannnnnn (winter especially).
The commissions are also what will help us make jumps vs steps at times tho say this summer when we expect to do our best income wise, and hopefully those will help us fund envelopes that need extra based on their due dates falling before our 12 months of doing the system.
I was just wondering how others deal with this issue when starting the envelope system, on a tighter budget man i just don't know how we would do it honestly, even now we are short monthly but are seeing the light with the jumps we can make with commissions and selling stuff.
I didn't attend FPU just piecing things together from the library and online resources btw.
- 02-27-2011, 07:47 PM #2
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That is a really good question. Can anybody help out here?02-27-2011, 09:00 PM #3
I'm not sure about the envelope system, but I have heard Dave Ramsey say recently about this very issue that you do two budgets: one with as many essentials on it as possible based on your salary, and the rest of the bills, hopefully all the cc's and other debt, based off of the irregular income budget.
Groceries, rent/mortgage, utilities, transportation (gas, insurance, car payment) out of regular income. That becomes the envelope stuff.
Debts are listed and payed out of the irregular part. If you make enough, you can make minimum payments and debt paydown. If not, correct me if I'm wrong, I think these get paid via percentage. This debt is X percent of my total debt load, so it gets X percent out of the irregular income to pay it. You may not be making minimum payment until income comes up some, but something is getting paid.02-27-2011, 09:58 PM #4
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RE the bill due in 7 months - easy enough - divide the amount due by 7, and use that amount for 7 months - then after you pay it, use the 1/12 payment to fund the sinking fund going forward.
As for the monthly shortfall but commissions that carry you forward, what you need is a Hills and Valley account that comes #6 in priority after Food, Transportation, Shelter, Lights and Clothing.
The hills and valley amount is a bit tricky to figure - but the basic use of it is simple enough - you use HV money to get you up to $0 when your budget for the month is in the negative. When you get commissions, replenish the HV first- so that you have a nice reserve for drier months.
So if you get a commission check every 3 months and your shortfall on a monthly basis is $100 then I would set aside $600 in the HV account (2x your shortfall for 3 months) - so in short months you cover bills from that $600, and when you get the bonus money you refil up to $600 first, and THEN you snowball your debts.
This means you won't have a monthly snowball - but you won't have a monthly shortfall either.If you could kick in the pants the person responsible for your problems, you wouldn't be able to sit for a month.
Did you know that a 4 year student paying $20,000/year who finances their education graduates with over $103,000 in debt to start? But a student who works and pays cash and takes 6 years to graduate ends with $6,300 in their pocket! So much for "getting a head start by financing!"
Greebo(Nerd Spender): Loving and extremely patiently tolerated husband of ceashels.
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ThreeTwo mortgages, two oneno car loans, oneno credit cards, and a partridge in pear tree!02-27-2011, 10:35 PM #5
I think once you get a budget going , you will figure out ways to tweak it. It's not set in stone. It is what works for your household.
I track our bills in a small book handwritten. One page for each month. The current book I am using, I can go back 7 yrs. Which can be interesting Usually I look back 12 months so I can see what is due for the month we are in. I am looking for the odd bills. Not monthly ones. Like items for our vehicles.
We only have a house payment and one truck payment. Then the utilities, insurance, and taxes.
When hubby gets OT in the winter, that money stays in the bank as a cushion. I'm the only one that does the checking account, so I get to be the meanie and say no a lot.
I'm really not into envelopes but am going to start doing our groceries that way this next month as an experiment. $ 200 and when it's gone, it is empty. I am going to retain the receipts for each month in a paper envelope, so I can check back on them to see patterns. I like being able to track things. I used to track grocery dollars in another book for awhile. That was interesting.
Good luck Let us know what works for you.03-04-2011, 11:16 AM #6
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We finally got a long overdue commission and wow did it help, then we found out we are getting a tax return too, that combo should help fund those envelopes that need a bit of extra help.
Giving thanks and praise for all the suggestions and help here and of course to the goG that we are getting a refund which will help us get this all funded without breaking the budget or having to go into the emergency fund.
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