Basic Envelope Question

**Jon** · 01-14-2010, 11:11 AM

I'm wondering what the consensus is for any overages on envelope items.

Let's say you earmark $50 a month for car repairs. At the end of the month, you have $40 left over. Is that kept in the envelope along with next month's $50 addition or do people immediately take that money and apply it to any debt?

I guess I'm wondering if the EF should be used for things like tires or auto repairs or should an envelope like car repairs be allowed to build up so that the EF is untouched if you should you be hit with a large repair bill. The same could go for things like groceries or entertainment...

**Greebo** · 01-14-2010, 11:19 AM

Originally Posted by Jon

I'm wondering what the consensus is for any overages on envelope items.

Let's say you earmark $50 a month for car repairs. At the end of the month, you have $40 left over. Is that kept in the envelope along with next month's $50 addition or do people immediately take that money and apply it to any debt?

Typically we let the money build up. After all you may spend almost nothing on auto repairs this month but be hit with a $500 bill next month.

I guess I'm wondering if the EF should be used for things like tires or auto repairs or should an envelope like car repairs be allowed to build up so that the EF is untouched if you should you be hit with a large repair bill. The same could go for things like groceries or entertainment...

The goal of the envelopes is to not have to use the EF. After all, you know you're going to have auto repairs. You know you're going to need tires. Just like you know Christmas is gonna come around and sneak up on you on 12/25. It should never be an emergency.

Now if you're just starting out to build up your car repair fund, and you have the tranny go out, it is going to very quickly QUALIFY as an emergency - but that qualification is only if you're just starting out. After a year or so you should be pretty much set to cover any irregular but predictable expenses.

**sunshine** · 01-14-2010, 11:23 AM

It depends on the envelope -- groceries, entertainment overages typically get added to debt. . . car repairs, home repairs, medical overages get left to build up.

**Greebo** · 01-14-2010, 11:43 AM

Originally Posted by sunshine

It depends on the envelope -- groceries, entertainment overages typically get added to debt. . . car repairs, home repairs, medical overages get left to build up.

We don't automatically take anything out of envelopes once its allocated. We may not spend our grocery money this month, but next month we may need extra.

Now if we end up with $3,000 in the pet fund for example, we'll re-evaluate. But in general, once it's in the envelope it stays there.

**Ceashels** · 01-14-2010, 11:48 AM

Originally Posted by Greebo

Now if we end up with $3,000 in the pet fund for example, we'll re-evaluate. But in general, once it's in the envelope it stays there.

We do however raid other envelopes to cover some things. So if we over spend in groceries and I need to take a little more, it comes out of one of the entertainment envelopes or haircuts, or personal care, etc. If we decide it should come out of the "snowball" then it is a joint decision.

**mombottoo** · 01-14-2010, 11:53 AM

Personally, I would roll the money over month to month for the auto repairs. As well as, all the other envelopes you may have going. You never know what's going to happen month to month or how prices are going to fluctuate.

At the end of the year if you have an extreme excess in your envelopes, then rethink the funds you are allocating for the different expenses. Or, you can do it at 6 months to see if changes need to be made.

**Greebo** · 01-14-2010, 11:58 AM

Originally Posted by Ceashels

We do however raid other envelopes to cover some things. So if we over spend in groceries and I need to take a little more, it comes out of one of the entertainment envelopes or haircuts, or personal care, etc. If we decide it should come out of the "snowball" then it is a joint decision.

SHHHHHH!

We're supposed to be PERFECT, remember?

**dcompton** · 01-14-2010, 09:38 PM

I don't use the envelope system so this is really just a matter of curiosity for me, but I've wondered about it.

Do you keep actual physical cash in physical envelopes? I can see that for things like groceries and entertainment, but car repairs, if you're lucky, are only an occasional expense. As it builds up do you keep some of it in the bank, especially for those more occasional and potentially more costly things, and track the allotment to categories on paper on with a spreadsheet? But then, that would be more like a sinking fund.

I would be very uneasy if had much cash around the house. It just wouldn't feel safe. I guess this very legitimate way to manage money just feels like alien country to me.

**Libby** · 01-14-2010, 11:24 PM

Originally Posted by dcompton

I don't use the envelope system so this is really just a matter of curiosity for me, but I've wondered about it.

Do you keep actual physical cash in physical envelopes? I can see that for things like groceries and entertainment, but car repairs, if you're lucky, are only an occasional expense. As it builds up do you keep some of it in the bank, especially for those more occasional and potentially more costly things, and track the allotment to categories on paper on with a spreadsheet? But then, that would be more like a sinking fund.

I would be very uneasy if had much cash around the house. It just wouldn't feel safe. I guess this very legitimate way to manage money just feels like alien country to me.

One way of doing this is to physically put $ into envelopes another would be tracking it on paper somewhere and putting the designated saved monies in one new account or having a few accounts alloted - ie via ING Direct or have an additional EF alloted for certain things - car repairs, Christmas etc.

I have never tried the envelope system myself but this is my impression on it.

**Greebo** · 01-15-2010, 09:53 AM

We have cash envelopes for some things, and a savings account for others, and we track the category amounts in savings on paper.

**Jon** · 01-15-2010, 10:31 AM

Thanks for all the replies. Very good information here.

So with a two income family, I imagine that a portion of each paycheck is taken out immediately in cash as it hits the account, then the rest is earmarked for things like bills, cc payments, car, rent etc.

**Greebo** · 01-15-2010, 10:58 AM

Originally Posted by Jon

Thanks for all the replies. Very good information here.

So with a two income family, I imagine that a portion of each paycheck is taken out immediately in cash as it hits the account, then the rest is earmarked for things like bills, cc payments, car, rent etc.

That's what we do, yep.

**Jon** · 01-15-2010, 12:32 PM

So for those folks who don't use the actual cash envelope method, how do you track it in something like Quicken (I use MS Money)?

Have a dummy post-dated withdrawl for the envelope items and reduce them as they are actually pulled out using a debit card? I'm thinking about this for things like auto repairs where you do want to carry things over month to month but don't want to get it confused with the amount you have earmarked for bills, debt reduction, etc.

**satarac7** · 08-15-2010, 11:41 AM

The wife and I have not really used the envelope system but we have different accounts for setting aside money. Once we got our Emergency Fund done we started using another savings account to be used as a general household fund. All bills come out of our primary checking account but we keep at least an extra $1000 buffer in that account.

The savings account also has a $1000 buffer that we keep as a mini safety net. We have a prioritized list of things that we want to buy using money from this account. We save up for an item (less the $1000 buffer) and buy it cash once the money is there. I can't tell you the satisfaction of paying cash and knowing you do not owe anybody anything. Example: This week we are having gutters installed on the house and they will be paid for in full with CASH!!!

We keep track of all spending through Bank of America. The budget program with that account allows you to track and categorize each transaction. The wife and I go over the budget monthly to see if we are staying on track. We only allow ourselves to go out to eat once a week. Even though we have a fully funded emergency fund, we are still saving as much as we can to get things for the house. Later we can "Live like no one else!"

**zakity** · 08-15-2010, 01:35 PM

I use a spreadsheet to keep track of my envelope system. We use our credit cards for everything (for the points-paid off each month).

Receipts are entered when we get home and the credit card website is checked every few days (because DH doesn't always give them to me). I use a double entry system. The receipt is added in one place and subtracted from the appropriate "envelope".