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  The Envelope SystemFriday, June 21st, 2024  

Face it, raising a family in today's economy is no easy task. Sure, there are families with enough money to do everything they want to do and give there children every new toy on Saturday morning television, but for the rest of us, budgeting is the only way to live.

Our family uses the time-honored "Envelope System" for budget planning. That's the way my parents raised nine of us and kept their sanity. Well, maybe they kept their sanity, but that's another story for another day. The Envelope System is easy, almost painless, and, most of the time, works without failure.

If you've never heard of the Envelope System, this is how it works:

First, you need to gather a calculator, past bills, a recent pay stub, a piece of paper, a box of envelopes, and a sharpened pencil. You may want a bottle of aspirin and a cup of coffee as well.

Sort your past bills (if possible, use bills for 12 months prior to today's date) according to companies that you pay on a regular basis. When you have nice, neat little piles, take each pile and calculate the average bill over the past 12 months. When you have the average payment amount, write down the company name and the amount. Your completed list shows the amount of money you need to set aside each month to cover your bills. Don't forget to write down such things as monthly groceries, clothing expenses, and medical expenses that you my not have regular bills for.

Now, that you have your list, get out an envelope for each monthly expense on the list. Mark each with a company name.

The moment of truth has come. Take a look at your total monthly take home pay. Write down that amount. Total your list of monthly expenses and write that down. Does your income cover the expenses? If it does, your on your way. If not, you either need to take on a second job, or find ways to pare down the expenses on your list. Personally, I'd opt to pare down.

Once you've figured out how to make the money cover the expenses, consider how often you are paid. If you are paid weekly, divide each expense by 4 to find out how much of each paycheck needs to be placed in each envelope. To do this scientifically, you need to divide the number of days in each month by 7 to use the actual number of weeks. I like using 4 because in some months their are 5 paychecks. If I can cover the expenses with 4, that's a nice bit of discretionary money left over.

When your next paycheck comes, stuff your envelopes with the amount you've calculated for each bill. Now obviously, because different bills are due at different times, you will have to make some adjustments. For instance, if your heat bill is due in the second week of the month, but your cable bill is due in the 4th, you'll need to use enough of the first paycheck to cover the heat bill and take enough to cover the cable out of the next paycheck. Within a few months, however, you should be able to take the correct amount out evenly from each paycheck.

For my family, the benefits of using the Envelope System are very clear. The money is right there. We can always tell if there's enough to cover the bills. We think twice of borrowing from another envelope and leaving one bill uncovered. It's easier to fool ourselves about what we can afford if we use the checkbook or a credit card. It's also dangerous.

Living within your means, whatever those means might be, is not rocket science, but it's not always easy to recognize when things are getting out of hand. Whether you're a struggling one income family, a single working mother, or a double income family with mounting consumer debt, forcing yourself to see where your money goes each month, how it's divided up, is an eye-opener. The Envelope System is just one way to get a dose of financial reality.

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