The Envelope System

I’ve been hearing a lot about the envelope system.  Apparently it’s nothing new but it’s new to me. The envelope system sounds like a good way to budget and not overspend.  According to Dave Ramsey, here is how the envelope system can work for you.

1.  Set the budget. i.e, groceries $400 per month
2.  Take half of that out of your bank accounts ($200) and put in an envelope. I am assuming this is for bi-weekly paychecks.
3.  Take the second half ($200) out of your bank account next pay period.  Again, I’m assuming because it’s based on half of the budgeted amount.
4.  Take the envelope with the $400 on your grocery day and go shopping.  If you spend more than the $400, take something out. You don’t add to it.
5.  If you run out of some items before your next month’s grocery allowance, you don’t buy it, you figure something else out. You make it work for whatever is in your refrigerator or pantry.
6. Next month, repeat!

While I’m sure this is a great system for some, here are a couple of things I personally don’t like about it.

1.  If you have money left over, reward yourself. Why?  Isn’t the concept of budgeting? If you have money left over, shouldn’t that go into your savings account or some type of emergency fund or put it towards another bill.
2.  The concept of carrying or having large amounts of cash in my house, car or purse just does not appeal to me.

I don’t knock the envelope system and I am sure it works. But for me, I think I would definitely save anything left over and not reward myself and if I would probably use a pre-paid card to put the cash on to go to the grocery store or any other place that is going to require me to use large amounts of cash.  Call me paranoid but there would be nothing worse then to have your purse stolen or your house broken into and that “grocery” money is now gone.  I need security when it comes to my money.

Thoughts?