Freelance Finance

We switched to the envelope system a while ago, after years of snickering at the practice, and I’m beginning to think it works. Somewhat. The envelope system is a cash-only budgeting technique in which you stick the cash you’ve thoughtfully allotted for Groceries, Dining Out, Clothes and other expenses in as many envelopes as you need. The envelopes are labeled according to the category. Then you go about your business, dropping Hamiltons, withdrawing greenbacks from their proper envelopes as you need them. When the Grocery or Dining Out or Gas Money envelope is empty, you stop spending. That’s it. That’s the system.

The system works because it:

1. Keeps you from using credit cards, which are the dirty handmaidens of Satan
2. Keeps you from using your debit card profligately
3. Forces you to constantly confront your desire to spend

Mire and I have been experimenting with the envelope system only a month, and I’ll let you know how it goes in the long run. We made a few concessions at the beginning. We are focusing only on the two line items in our budget that were bugging us: Groceries and Dining Out/Entertainment. I know it sounds like there are three categories there, but that’s how we set it up in our MSMoney program. That’s concession #1. Concession #2 was, well, we didn’t use envelopes. Mire puts the Grocery money in her wallet, and I put the Dining Out/Entertainment money in mine. (”Because, when we we go out someplace nice, I want you to pay,” is how she decided the issue.) Since we are inseparable, having one person carrying around one budget item’s worth of cash every day doesn’t present a problem. But I concede that we are not sticking strictly to the system, and that other couples and singles need to come up with a strategy that works best for them.

Before you ask, all other spending gets slapped on the debit card. We don’t think this will be a problem, because after three years of mind-numbing analysis, we have zeroed in on these three categories—food we eat in, food we eat out, and the sweet, siren call of the cinema—as the things most likely to get us into trouble. I’ll let you know what happens. Watch: Our Postage category will balloon to $18,000 a month.

Anyway, it’s amazing how it works. Say we’ve got five days left before the next permitted infusion of cash, the Dining Out/Entertainment envelope holds $12, and we want to go somewhere nice for a drink. We peek in the wallet and say, “Hmmm….Two glasses of wine would cost at least $12, and we won’t have anything for a tip. How bad do we want this drink, anyway? Is it the drink we want, or do we just want to get out of the house? Would a glass of wine at home be OK, or do we just need to take a walk? Do we even have wine at home? Could we spend the Grocery money on it? Could we go somewhere and have a coffee instead? How stupid do we look standing on a sidewalk talking to a wallet?” These are all things we would not have contemplated if we didn’t have the envelope system—er, wallet system—in our life.

One day, we were both stunned to hear ourselves say, albeit in different words, “I want to go for a drink in a nice place because it makes me feel nice about myself.”

Whoa.

By talking to a wallet or an envelope, you learn that money is tied to choices based on values. If you can get to the heart of your values, you might figure out where all that cash goes.