The Total Money Makeover: A Proven Plan for Financial Fitness

by Dave Ramsey

Breaking Down the Envelope System It’s easy to overspend when you don’t have a clear boundary line. The budget tells you what that line is for each category, but when your gas money and grocery money and entertainment money are all sitting in one big lump in your bank account, one category can plow right past the line without you knowing. That’s why I recommend using the envelope system for some categories. Say you budget $600 for food this month. Well, when you get paid, you take that $600 out of the bank in cash—yes, actual cash—and put it in an envelope. Write “FOOD” on the outside of that envelope. When you go to the store, take your envelope and spend your cash. You don’t use that money for anything other than food, and you don’t buy any food except with the money out of that envelope. When the cash is gone, you’re done! That’s a pretty clear boundary! The envelope system works best in categories like food, entertainment, clothing, gas—stuff like that. You don’t need to use it for monthly bills that you send through the mail or have automatically debited from your account. Here’s the deal: Swiping a piece of plastic doesn’t register in your brain the same way cash does. When you actually lay a couple of Benjamins on the counter, you know you’re spending money! That’s why using the envelope system will help you change your spending habits. Cash is king!