A Working Envelope

You might have wondered why we call our budget the "Modern" envelope budget. My grandma told me that she use to take my grandpa's paycheck, cash it, and then divide it up between her envelopes that represented all of her bills and things she would spend money on. What makes our budget different than my grandma's?
The concept behind our budget is exactly the same thing that my grandma did. The modern twist is a wonderful thing called "secondary savings accounts." Anyone that is living on a tight budget knows that every penny counts. Pennies really do add up. We discovered that our bank does secondary savings accounts. So instead of having a bunch of envelopes in our house collecting dust, we decided we'd have "modern" envelopes in the bank collecting interest. For each of our "envelope categories" we have a separate secondary savings account. Each month I can deposit money into these secondary savings accounts, just like my grandma put money into her envelopes. These modern envelopes work for you in two ways.
1. They earn interest. I know it isn't a lot. But pennies do add up. An example of this is that we enjoying going to plays. We figured out how much it costs for season tickets to a local theater, we divided that amount by twelve, and each month we stick that much into our "theater" envelope. The interest that is earned over the course of the year is enough to cover sales tax on the tickets. Thank you working envelope!
2. They envelopes are safe. Safe from me. When I deposit money into a certain envelope I am not as likely to spend it on something else by accident. When I get $10 for my birthday I can deposit it into MY fun money account and there is no way that it accidentally gets spent on the water bill. When we are saving up for a piano, the money in our "piano" account stays there for the piano. It doesn't get spent on dinner at our favorite restaurant by accident. The money is safe.
That is one thing that makes our budget a bit different than a traditional envelope budget. We have envelopes that are collecting pennies for us each month and that are keeping our pennies safe.

More on Envelopes

One more thing about the envelope expenses.  This is a great way to save up for things.  My husband and I enjoy going to the theater and we love going on vacation.  Some of the categories in the envelope expenses group are things that we save up for.  They are just safe places to store money, so that it doesn't get spent on other things. 
So some of your envelope expenses categories will have a budgeted amount of $0.  But when there is extra money you have a place to throw those few dollars so it doesn't get spent on anything else.

Three Groups

Our budget has three groups.  My husband and I sat down together and split everything into one of these three groups.  In each group there are specific categories.


Group #1--Income
This group consists of our income that is steady and other income that might come our way.  We have two categories in this group.  Salary, which has a predictable amount each month.  Other Income, which is not predictable.  Some months we might have a lot of extra income and other months we might not have any at all.  When we set up our budget we plug in the predictable amount of salary and that is what everything is based from.  That way our budget can be followed even if there is not extra income that month.  Plan your budget around your consistent income.

Group #2--Standard Expenses
This group is made up of all of our expenses that we know we are going to have to pay each month.  Most of these expenses are things that we can budget for down to the penny.  Some examples of categories in this group are: Mortgage, gas for cars, groceries, utilities, HOA fees, and tithing.  We plug in a budgeted amount for each of these categories.  We try and keep it as close to the standard amount as possible.  For example, we know that our water bill and cell phone bills are going to be pretty much the same exact figure each month.  So our budgeted amount will be right around those figures.  We also set a budgeted amount for groceries and gas.  We watch these two categories closely over the month to make sure we don't go over the budgeted amount.  The amount we spend in these categories varies but they are still standard expenses that we will have each month.

Group #3--Envelope Expenses
The last group is our envelopes.  To create our envelopes we do a few things.  First, we need to know how much money we have to put in the envelopes.  We take the budgeted amount of our income and subtract the budgeted amount of our standard expenses.   This lets us know how much we have left over after everything that HAS to be paid is paid.
Now that we know how much money is left we need to split it up into what we call our envelopes.  Step number two is to create categories for everything else you ever spend money on, or would even like to spend money on.   This is the last group.  So anything that doesn't fit into your standard expenses goes here.
These are things that you spend money on, but not every month.  For example we pay for our car insurance once a year.  So we have a "auto insurance" category.  We divided the amount we pay for auto insurance by 12 to know how much we would need to save for it each month.  That then becomes the budgeted amount that we put in our "auto insurance" envelope category.   Some of the categories in this group are random expenses.  Sometimes we have medical expenses, sometimes we don't.  Sometimes we buy a gift for someone, sometimes we don't.
Another example of a category in this group is savings.  We save for lots of things.  We save up for vacations, we save up for our daughter, we save up for Christmas, we save up for a car that we will need in the future.
Once we have figured out all the categories for EVERYTHING else that we spend money on, we take the amount that we had left over after our standard expenses are paid and we divide it up between all of our envelope categories.  Some categories need more money than others.  You just need to sit down together and figure out how much should go into each category.
Make sure as you create these categories you remember to include yourself.  We have our "fun money" accounts.   Each month we get a little bit of money for our own personal use.  If we want to save up our fun money to buy something big we can.  That way when my husband buys his fancy cell phone, I don't care, because he is using the fun money that he saved up.  I don't feel guilty buying fabric, running races, or buying books, because it is my fun money.

If you'd like to try out our budget here is your first homework assignment.
Sit down together and create your three groups.  Figure out your income, standard expenses, and envelope expenses.  Create names for each of the categories under each group.

Our next post will explain what we do now that all the categories are set up.

A WE Thing

The first thing that we have done with our budget is that we have made it a WE thing. I understand that many couples have separate accounts and separate budgets. Sometimes he is in charge of the finances and other times she is. We wanted to work together on our finances. We didn't want one person to set all the limits and the other one to complain about it. We knew it needed to be a WE thing.

That is the first step to happy finances. Work together. Find a time to sit down together to work on things. That doesn't mean that I don't balance the accounts while my husband is at work. But when it comes to any financial decision or any change in the budget we work through it together.

Why?

My husband and I have talked about doing this blog for a long time.  Why?  Because we LOVE our budget.  It always makes us sad when we hear about couples arguing over finances or who are in financial trouble and just can't figure out how to make things work.  We have found something that works really well for us.  We love it so much we want to share it with anyone who would like some ideas of what they could do to make their budget better.  My husband and I will both be posting to share our ideas and different points of view.  Any time you'd like to add your advice or experiences please feel free to comment.