In the past, many Get Rich Slowly readers have sung the praises of the “adult allowance”. Though I’ve read enthusiastic comments supporting this idea, I’ve never paid it much heed. To be honest, it’s always sounded lame, and I didn’t think it would be useful to me. I was wrong.
Accidental allowance
Before our short vacation in early October, I pulled $200 out of the ATM. This is unusual for me. I don’t like to carry a lot of cash. I find it easier to track my spending when I use credit or debit cards.
I didn’t spend very much on our trip. I bought a few old books, but mostly we did low- or no-cost sightseeing. When we returned home, I still had about $160 in my wallet.
Normally, I would have put that money back into the bank. I kept it in my wallet instead. For the rest of the month, I used it whenever I bought something that wasn’t a Need. This wasn’t anything I had planned to do, and it wasn’t even conscious at first. It just happened. Eventually I realized that I had been forcing myself to purchase Wants with the leftover cash.
By the end of October, I’d spent nearly all of that $200. I’d only used my plastic for play once or twice. “Interesting,” I thought. “What if I were to do this intentionally? What if I pulled out $200 for the month of November?” So I did.
Cashing it in
At the beginning of November, I withdrew another $200. All month, I used that money whenever I purchased something that wasn’t a Need. The new Popeye book? Paid with cash. Quantum of Solace, popcorn, and red vines? Paid with cash (and without complaint). A trip to my favorite cheap taco place for lunch? Cash again.
As the weeks went by, I began to feel liberated. By allocating this money to use however I pleased, I was freed from feeling guilty about every little thing I bought.
Still, I wasn’t spending the money willy-nilly; in fact, I found myself considering every potential purchase carefully. Because I knew I wanted the $200 to last the entire month, I was careful with it early on. I passed up easy treats. By pinching pennies early, I was able to afford a splurge I had thought to deny myself.
When tickets for The Decemberists sold out, I gave up hope of seeing their post-Thanksgiving show here in Portland. But entering the final week of the month, I still had $100 in my wallet. Because of this, I purchased a $60 ticket off of Craigslist, something I normally wouldn’t have even considered. I was happy to do it.
Now I’m ready to pull out another $200, and I’ve come to a realization: That adult allowance idea I used to think was lame? I actually like it!
Part of a balanced budget
Though the initial $200 withdrawal was arbitrary, it works well for my income and my circumstances. I can afford to give myself $50 a week without compromising my other financial goals. It works well as part of my balanced money formula. I intend to use this number going forward, at least for a couple of months.
Though I’m nearly sold on the adult allowance, I still have a major concern. As you know, I’m a proponent of tracking every penny you spend. This is easy with debit and credit cards, but I’m notoriously poor at accounting for my cash spending. I’m awful at it. I’d love to hear what others have done. If you give yourself a cash allowance — even if you don’t call it that — how do you handle the record-keeping? For now, I’m just logging it in Quicken as $200 in “Misc Expenses” when I make the monthly withdrawal.
I’m also interested to hear other tips and tricks from folks who have a cash budget for fun. How much do you give yourself? What do you spend it on? (Though I’m spending mine on Wants, it doesn’t cover all wants. When Kris and I go out to dinner, I stick to my traditional system.) By using cash for my discretionary spending, I’ve found I’m less likely to make impulse purchases. Have you found that to be true as well?
Photo by dyobmit.
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The hubby and I get $20 a month each (well, not for the last couple of months because of some crises). I’m a big fan of the allowance system. It allows me to get some things I want for fun and that are just for me without feeling guilty for spending “our” money on what seem like “frivolous, selfish” things. And having that freedom prevents resentment. When my husband wants a video game he saves up his allowance and buys it with “his” money. When I want some supplies to try out a new craft I use “my” money. Neither of us has to feel like we’re going without something we want for what the other wants.
As for tracking cash spending:
We use cash for almost everything (except rent, insurance, etc. which are direct deposits). We use the envelope system. It saved our finances. We just track our spending on the outside of the envelopes for the different categories. Easy as pie.
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Like Bill @150, I have a line item in the budget for “blow money”. Then I don’t have to track it – but it usually goes for special foods, lunch out, etc. Not extravagant, by any means, but enough to feel like I’m treating myself and/or don’t have to panic/scramble if I forget my lunch at home in the fridge.
My wife and I used to get equal amounts, but I discovered that I can get by and feel just as good with less, so I cut back and don’t miss it and don’t feel slighted. This is in line with a post from a month or so ago about ‘using less’ detergent, cocoa powder, etc. If you don’t miss it, it doesn’t hurt you! Like Jason notes @136, you MUST remove judgement from the choices a spouse/other makes with the allowance. That was hard for me at first. People magazine? Seriously? (To which she replies, ‘another chisel? seriously?’)
JD, when I get to the end of the month and still have some left, I’ll just decide to see how long I can go without pulling out the next month’s allowance. I’ll get later and later in the month, and I wind up skipping a couple months each year – thereby saving that money for a different purpose.
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My wife and I give each other $75 a week to spend on ourselves. But the key is this isn’t just fun money or “blow” money. It covers anything we spend on ourselves, clothing, haircuts, personal entertainment, sports, coffee or lunches at work, etc. It just the right amount that you can save enough each week if you want to buy something bigger. That way we don’t have to negotiate or justify buying things for ourselves like an ipod or day at the spa, if you saved up for it then neither of us can feel any resentment. We’ve been doing it for 2 years now and it’s worked great.
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I haven’t read the comments, I just wanted to contribute the methods I use.
a) get an actual envelope and cut off the top of it the the height of a dollar bill, then cut off the right side so it’s more like a sleeve.
Put the money in the sleeve. On the outside of the sleeve write the purpose of the cash inside (or don’t if you’re just using one sleeve).
Now you have 2 options:
Every time you make a purchase from the envelope, put the receipt in the envelope. If there is no receipt for the purchase, you can either write the amount of the purchase and the category of expense on the outside of the envelope, or take a slip of paper and make up your own receipt and put it in the envelope.
My receipts or “chits” that I make look like this “12/8/09 5.72 food out”.
Periodically (at least once a week) I empty the receipts out into a jar by my computer for later entry into my financial program.
(As an aside, this is how I track ALL of my spending–I record it first on a receipt, self-produced if necessary, put the receipts in the jar, then manually enter it into my financial program. I have found that this avoids “transaction drop” and gives me a better sense of my finances on an ongoing basis)
I don’t have tips as to how to use Quicken efficiently for this, because I found quicken to be so labor intensive that I switched to using my own spreadsheet, which is formatted so that I just have one sheet of transactions for the year and all I have to do is enter date, amount, account, category, and, if I want, a comment, which takes me like 5 seconds per entry. (another sheet in the workbook slices and dices according to spending category and time period and compares to my budget). But I’m sure others could give Quicken tips if that’s what you use.
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I am paid every other week and I allocate $200 per paycheck as “allowance”. I pay the housekeeper $50 out of it since she comes every other week (and though I appreciate her services they are by no means a necessity LOL). Otherwise, I do not track this money. In Quicken, I have an expense labeled “Allowance” so that the ATM withdrawals are posted to that category. It allows me a little bit of freedom in an otherwise structured system.
I budget using a modified form of the 60% solution. 60% of my takehome pay is allocated to “committed expenses”, 10% to LT savings, 10% to ST savings and 10% to fun money. I only allocate 4% of takehome to retirement because I have 9% gross (pre-takehome) going into retirement as well (which is also matched by by my employer at 4.5%). This leaves me a 6% cushion (hence the “modified” form). This cushion actually physically stays in the checking account but in Quicken I usually sweep this to a “holding” account and use it as desired for larger things (like TV, Wii, etc) as well as built in overdraft protection.
Another thing I do is to make it a game to see how much of my allowance I can have leftover at the end of two weeks!
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BTW, when I make up my envelopes I just reuse and cut up the ones I get in the mail. It’s cheaper that way and I would be just throwing them out otherwise.
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I forgot to say, the envelope “sleeve”, cut down to the basic height of US currency, fits in my wallet, which is where I put it Try it. It makes it easier to organize my wallet, I find.
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@ Tammy who wrote, “I don’t track my allowance spending. Half the fun of having an allowance is spending it on whatever I want without having to worry about it.”
I always like to know what I spent my money on no matter what. That doesn’t mean I’m worrying about it however. Just because I wrote down what it was doesn’t mean I am worrying about it. It just means I get better info on what I actually do with my money, which I have found is extremely useful.
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I also set aside a particular amount for discretionary income (the amount varies with my overall income), although I hadn’t really thought of it in terms of an ‘allowance’ before. Although I’m meticulous about keeping track of my spending within my general budget, I don’t track the individual purchases that I make with this money – for me personally that just feels a bit OTT.
I guess I do see it as ‘fun’ money, but I don’t feel compelled to fritter it away just for the sake of spending. I’m a bit clutter-phobic, and I don’t like buying ‘stuff’ that I don’t really want or need – so that rules out mindless impulse shopping. If I don’t spend it one week, I just put it aside & it mounts up until I do. So, as far as record keeping goes, I’m pretty relaxed when it comes to this money – I just categorise it as ‘misc expenses’ too, & am happy to leave it at that.
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I too hate to carry cash, but for the times I do I have a “cash” account in Quicken called, appropriately enough, “Cash in Wallet”. Whenever I spend money it gets logged in just like credit card transactions, allowing me to code the expenses the same. It’s always easy to check whether it’s in balance just by looking in my wallet. If I have a discrepancy, I usually code it to food since that is where most of the cash is spent.
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I use something very similar, by using some kind of credit/debit for everything that I need, and cash for wants. It works out well because the cash I have on hand I can afford to not save, and it helps me ‘ration’ that cash. Like if I didn’t spend any last week, it means I have twice as much to use this week on a nice date or something. I’m not usually a fan of the mental ‘trickery’ involved with saving, but this one really works well for me.
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My Mom is “the original” penny pincher. She uses a credit card maybe twice a year and refers to it as her “AARP card.” She still does that old-fashioned thing of going to the bank and withdrawing money – has a hissie-fit over paying ATM fees to retreive her own money!
Despite her seemingly old-school ways, you better believe she knows exactly where every penny of her cash went. She keeps a small 2×4″ spiral notebook in her wallet and when she takes out money, she records it. At the end of the month she tallies it all up and aside from knowing – to the penny — where her money went, she immediately starts complaining about how much they spent for groceries or how much they’re paying for gasoline. It’s old-fashioned, for sure, but a pocked-sized spiral notebook will allow you to make one combined “cash” entry to Money or Quicken at the end of the month. Your records will be complete and you’re montly reports will accurately reflect where every penny of your money went. Cheers!
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My wife and I have been using the fun money or personal allowance concept for a few years since I read the “60% solution”. I think you can still find it on the MSN archives. Anyway, it allows us each to spend 10% of our after tax money any way we want to. We both work and have vastly different incomes, so it helps each of us feel that we get a direct return on how hard we work and helps avoid fights. In case you’re wondering, the other 90% gets broken down like so:
60% fixed expenses and necessities ( not an easy task and not always exact, but a good goal)
10% Long term savings (vacations, car down payments or payoffs, emergency fund)
10% short term savings (Special dinners out, holiday gifts)
10% retirement (currently a 401K with a 100% match on the first 4% and actually this is 10% pre-tax. The other amounts are determined by assuming that the after tax money is 90% of the total.)
We’ve been able to build up sizeable reserves using this method which we’ve used to help with the down payments of our last two houses. Granted, because of the down economy, we ended up buying more house than we typically would, but that just put us where the 60% is now more like 72% and we’ve adjusted our fun money down and are working on decreasing our spending overall to make up the rest.
My wife and I fully admit to spending more than we need to, but we also still live well within our means and have enough to put towards our future. Yes, our retirement fund got hit hard by the dips in the market, but we still continue to buy during the dips which has proven to be a good long term strategy. We’re still in our mid-thirties, so we figure we can ride this out. If the 401k matching were ever to change, we would adjust all of our other percentages accordingly.
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My husband and I each taking some cash for ourselves actually saves us money and stress. We can each buy what we really want. I am VERY careful with my “personal” money, and I don’t part with it easily!
And we don’t keep track at all, I just write down “Cash – Amy” and then “Cash – Kevin”. I wouldn’t want to track my fun money, and I don’t care what my husband spends his on.
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I accidentally started this practice about a year ago. And, do not track my cash. I find that I actually spend less because it is “my” money. I love having “my” money build up in my purse. I use it for lunch or whatever out. Even a jug of milk when that is all I need from the store. As it builds up, I find I want to share it more than my “real” money. As in donations. And, when it really builds up, I can get a nice new outfit and feel like I really got a reward.
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I have a small spiral-bound notebook in my purse. If I spend cash and am nowhere near my laptop to input it into Quicken, I write down the date, the amount, and what it was spent on in the notebook.
It is no different than writing checking account entries in your checkbook register. Not a bit different. If you routinely write down your debit card transactions in your checkbook on a daily basis, just pretend cash transactions belong in a register too. If you have problems keeping up with your checkbook register, though (and you track your accounts through online banking or similar instead)… I dunno what to suggest.
Quicken lets me have a cash account. And with any other entity that holds my money but isn’t a bank account, such as PayPal, I set it up as a cash account but rename it.
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Oh, and when I track my cash in Quicken, I don’t lump it into one big cash entry at the end of the month, as others here do. I treat it, again, exactly like a checking account. If I spend a buck twenty-five on the washing machine in my apartment building, I enter the transaction as a household laundry expense. If I buy soda in the laundry room, I enter it as a vending machine soda expense. (And beat myself up at the end of the month for paying ridiculous amounts for something that costs me maybe a third of the vending machine price at the grocery store!) It keeps me honest–I know where my money goes to the penny, AND I know what I am spending it on to have a better idea of where I might need to cut back.
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Cash tracking is quite effective with mobile phone. I’m using this method for years. I have one SMS dedicated to put down all my cash payments with easy prefix (eg f10 – food $10). Lot of handys are supporting hot menu and you can place your SMS or memo there. Each week or so you can summarize your spendings.
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This is EXACTLY what I do (and my husband will probably start doing the same) – the adult allowance is exactly what I need because I’m just about the worst impulse spender out there.
Basically, this is how it works for me. My husband and I have completely seperate banking, except for our one joint account. We both get paid fortnightly (alternate fortnights), and so each pay day a set amount goes ($600) goes to the joint account from each of us to cover rent, food, utilities, gas and other household expenses. Then I have $600 go to my savings account (in a seperate online-only account). Then $57.50 ($115 per month) is for transport costs to and from work (monthly ferry pass). This leaves $150 per fortnight for me as my allowance – which I withdraw in cash from an ATM on payday. Easy!
It basically works the same for my husband and his accounts, except he does it without thinking about it (much better with money than me!).
Having cash in my wallet stops me using my credit card!
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This is great! I have been wanting to do some variation on the envelopes system for a while, but I couldn’t deal with the idea of having large amounts of cash in my house or wallet. I also download transactions from my credit union’s website and upload them to You Need a Budget, so I avoided using cash because it’s harder to track. BUT, if I only give myself the cash that would go in “entertainment” anyway, then who cares?!! BRILLIANT. That is the category that I have the hardest time keeping within budget.
The plan for next paycheck (paid monthly) is to decide what I can afford for an allowance and chop that in quarters; that amount is how much I’ll get each week. If I don’t mete it out, I’ll spend it all at once. Have to decide what counts as “entertainment” first, though, I guess. I will still use my debit card for most or all other categories.
I think for certain personality types, an allowance free of tracking might be a bad idea, and a way to cheat, but for other types, it is enough freedom that you stop feeling resentful (and rebellious) about tracking every stupid penny. I get so frustrated typing things into YNAB that I fall off the wagon more than I’d like (also my computer keeps breaking, which doesn’t help). Neurotically tracking every penny isn’t helpful for people who are neurotic already. That said, I want to make sure I don’t spend all of my entertainment money on Vanilla Coke and bean burritos, so I am going to have to be very specific about what the cash is for.
I want to move closer and closer to remarkable frugality, so I want my expenses to get lower and lower, but if I do decide that I can afford $200 a month for burritos, yarn, novelty socks and styling products, then it is a question of priorities and not penny-tracking.
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PS: In YNAB, you can set up a ton of different accounts of various types, including cash, but I’ve tried that and it doesn’t work for me and my lifestyle. It’s another level of complication. But the YNAB program is totally competent in the cash department
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I do a bit of the combination of cash and card. I opened a second checking account at my same brick and mortar bank (though big savings is at ING). Every month, I transfer the whole allowance to the checking account. I leave some on the card for gas, and I take the rest in cash. I can log on to check if I need to, or a look at my cash and see where I am for the month. Also, for cash tracking, I just round up to the next whole dollar and figure it’s a painless way to save a little extra over time.
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Both my income and my wife’s go into my ING account, and I track every expense to the penny electronically (using both Yodlee and HandyFinance on my PDA) but my wife has been complaining how she doesn’t like having to “justify” everything she buys to me. We put everything on rewards credit cards and I pay them in full the day the statement cuts. She has a separate bank account, but never has any money in it.
I think that starting in January, every time I get paid (every two weeks), I’m going to withdraw $25 and give it to her in cash for her to spend as she pleases without me being able to track it. I don’t WANT to have to track it. I’ll just show a withdrawal to Joint Expenses; i.e., its money that’s already been spent. I’ll actually start next week when I get paid, but I’ll give her a double portion up front the first Friday in January.
This will only be for expenses she doesn’t want me to track. I think $50 a month will be plenty, as all gas, food, clothes, and nearly everything else will be put on a credit card and be paid out of our joint account. Basically, she’ll only need it for makeup, coffee, eating out with friends (if she doesn’t want to use the credit card), and presents for me.
We’ll see how it goes..
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I’m amazed to read that other people use what I thought was my weird system of a fixed amount that covers groceries, eating out, and impulse buys. It works for me because I like to eat out once or twice a week, but if I want that new book, or a pedicure, I need to stick to eating in, or some such variation.
Once I found myself with enough cash left at the end of the month to pay for my car maintenance, which I usually charge. It was nice to pay cash!
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@Vicki (from the post just prior):
Be careful including groceries in this category. I have found that it’s better to make a firm groceries budget/envelope that is separate from my “allowance” envelope, so that I am sure I can feed myself for the month without going over budget.
See, if I include eating out in with my grocery money, what happens if I eat out 5 times instead of 2 out of the cash envelope, then don’t have cash left to buy enough groceries?? That has happened to me before and blown my monthly budget out.
So I make the “allowance” be only *unnecessary* expenses, which to me would include eating out, books, movies, and stuff like that. When that money is spent, I know it is spent so no more movies, books, or eating out or whatever. But I still have money left over for groceries because that’s a separate envelope or category that is sacrosanct.
This way I am not tempted as easily to dip into savings or use credit card debt to cover the holes in my planning. After all, all I really need in most cases is food until the end of the month. It’s easy to stop spending on the other stuff, the trick is knowing *when* to stop. Which is what the envelope system/adult allowance is set up to tell me.
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We each get the equivalent of $12 USD a month (it’s what we can afford, and we always have plenty leftover; cost of most things is quite low here in China).
We spend it on anything that’s either wants or that’s mostly in the category of “me only”: books, dvds, crafts, non-meal snacks, and little extras like hair bands, notebooks, pens, and other small random expenses that only one of us will use. We also use it for all our clothing (this is partly because for me, clothing sometimes overlaps with crafting). We also save it to spend on valentine’s and anniversary gifts, the only two types that aren’t included in our budgeted “gifts” category. We have money budgeted separately for dates, so eating out isn’t “personal allowance” money.
This system works great for us. One, it’s easy to surprise the other person. Two, I sort of “microbudget” my allowance. My husband handles the overall family budget, so I divide my monthly allowance into to what I want to save for the next gift occasion, what’s for clothes, how much I can spend on crafting (this probably keeps me from going overboard in that realm!!), etc. Three, I realize the value of my kuai (Chinese unit of money) and so I don’t impulse shop.
Working great for us!
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People have been asking how someone can hange their mindset, and prevent themselves from just returning to the ATM to withraw more allowance. I would say for starters – break it into smaller portions. Go on a weekly basis, or possibly even a daily basis. Its a lot easier to hold off spending for 24 hours, or a couple of days, instead of looking at a long dreary month ahead without any fun money. It will also reinforce the idea of not spending every available cent. If it is broken up into sch small portions that it seems like a meager daily amount, then you will be more likely to conserve it until tomorrow.
It also helps to plan ahead. If you know you want to buy a DVD that is coming out in two weeks, put that money aside. If you want to be able to go see a movie in the theatres on the last week of the month – put that money aside. Assigning it to specific activities will help because then if you sped it, you know you are giving up movie night.
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I agree with # 6 up there. One of the points of fun money is to just be able to spend it on anything you want. Otherwise I would say each expenditure within it would just be budgeted somewhere else.
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I also find it strange to include food in this category ( even eating out), but whatever works. Everyone is going to have a different idea of how they would categorize their own expenditures and what their individual wants and needs are.
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We changed our system about 4 months ago – we use cash for our family eating out money & for our own personal allowance or “blow money” as we call it. I have separate sections in my wallet, and I have our family food cash in one along with a piece of paper where I jot down ‘Applebees $20 12/13′ etc. We found that by writing down each restaurant and how much we spent, it really helped us pay attention to whether or not a restaurant was worth the $$…we had burgers and chick strips @ Red Robin a few months ago, and it cost us $33 for 2 people…way not worth the level of food, and we won’t be going back. It really helps us stick within our food budget, and so far, after tracking our food this way for 4 months, we’ve yet to bust our budget.
On the individual side, we’ve always had blow money, but we’ve then struggled with how to handle our individual eating out. I’m a SAH/WAHM and my husband is out and about a lot (we own our own business). He eats out lunches a good bit out of necessity, and I found myself “planning” errands to coincide with lunchtime so I could eat out too, bc I didn’t want to be “left out”.
Starting with this new system, we bumped up our blow money from $50 to $100/mo and that now includes our hobbies as well as any individual eating out that we do. Now, I find myself specifically planning so that I can eat at home so that I don’t have to spend my “own” money, and have accumulated a tidy little savings pile (I’m a stasher) over these months. He continues to be out and about a good bit, and ends up using at least some of his towards food.
When I do end up being out, I’m much more diligent with what I eat, and am better at using coupons to reduce the cost, rather than getting 1 sand plate @ Zaxby’s with a drink for $8, something I never thought twice about before. I have been lax so far, but intend to keep another slip of paper in my wallet to jot down where my blow money goes so that I can also look back at the end of the month and better evaluate my decisions…great post!
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@ jodi from the previous post:
this is not a criticism of your spending practices, but since you mentioned a couple times having to eat out because you were our of the house, I just wanted to make the point that just because you are out, doesn’t mean you have to *eat out*–at least not very time.
It certainly is convenient to eat out, which is why I used to do it a lot, but I realized that the money would be more useful to me used for other things.
So over the course of the last, say, year and a half, I have gradually shifted to eating all of my own food that I make at home. If I am going out, I throw a lunch together (maybe some hot stew in a vacuum container, some fruit, and a small thermos of coffee in the winter) in a canvas bag and take it with me.
It may be worth it to you to eat out, but I think it’s important to realize that you do have the option to not eat out and just eat food that you packed. Kind of like a picnic.
One thing about your post that I also found interesting is the part about how once you and your husband granted each other a a budget for “blow money” that included food, you started to not eat out so you could save the cash for other things! It’s interesting how when we have control over our budget amounts, we start to make different value decisions for the spending, seeing a personal benefit from not spending the money because we can “save it up” for our later use. Whereas if it the money is from a common pool, there is a tendency to use the money up because if you don’t you won’t be able to use it later, because some other party might use the money. I see this in business contexts, too–some of my business clients are nonprofits or local governmental agencies that have yearly budgets. Since they don’t get to keep money from one year’s budget and save it for use in the next year, I get orders for supplies and books and such from them at the end of the year, with the proviso: “this purchase has to be dated before X date”. If they had the ability to hold onto their money without losing a corresponding amount in their budget the following year, they probably wouldn’t buy those supplies, at least on that schedule.
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My late husband and I used the allowance system too. It was a budget and relationship saver! (He was the spender, I was the saver). Now that there is just me, I just have a line item in the budget for “personal spending”.
I withdraw cash three times a month (1, 10, 20th). The cash is casually tracked (to the next highest dollar) on a slip of paper in my wallet and the change gets dumped into the change jar.
I used to use my overtime pay for the personal spending without guilt category, but am on salary now, so have switched systems. I’ve also streamlined the number of savings and checking accounts I have open to take advantage of the new high yield checking account (5.25% !!!) at the work credit union.
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I pretty much try to track it to the penny; I have a couple of methods I’ve tried. One is the spreadsheet I downloaded from Crazy Aunt Purl; the other is a very simple table that I keep handy in Word. I have one column for dates, and five columns across: Food, Doctor, Fabric/Yarn, Other, Clothes. It might not work for everyone, but it works for me. I itemize everything that goes into each column – what I bought, how much. Anything that’s taken out of my paycheck, I don’t track – I treat it as money I never had (transportation, gym fee). Yep, my mortgage and other household expenses are Other (although it might make me feel more adult to call it Mortgage/Other). There aren’t a lot of columns, because there isn’t much to divide – my recurring household expenses (“Other”) take most of it. But it does let me track when I’m spending too much money at the used bookstore. This year I expect to see even less divided – my goal is to knock out my credit card debt completely next year, which may make for some creative dressing. And eating. However, it’s what I really really REALLY want to accomplish, and I get a perverse pleasure out of seeing my credit line offers go UP as my balance goes DOWN.
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My husband and I have had allowances since day one in our marriage. We had tons of cc debt to pay off, so I was a little worried, but we’d been advised that tightening the belt too much and never having any money for anything but needs could create tension in our marriage. After three years of having $200 per month per person, and constantly each of us blowing through it before the month was over, we switched to a weekly allowance. And it’s worked like a charm! Now, if I run out of my money, I know it’s only a few more days until I will have some more. At the same time, we have paid down nearly 20K of cc debt and paid off and sold a car that we were upside down on the loan on. We went down to one car for going on a year and a half now, and for us that was a much easier sacrifice than our spending money, which could have easily covered a car payment. Yes, we could have paid down 4800 per year more of debt, but that’s if I had made it that long. Knowing that I can spend this money however I want, guilt free, has made our marriage work so much better. We never fight over money now, have a wonderful working budget (we use emvelopes/finicity) and because of in impending inheritance, we will be paying off the remaining 17K of cc debt next month. What will we do with the $1500/month we’d been putting toward debts? Max out our 401Ks, create a new envelope for new baby expenses, and start working on our 6 month emergency fund. It will feel so good, and the adult allowance was such a key part of getting this far!
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I know that I’m late to this discussion, but I thought I would still add my two cents.
My husband sells collectors’ items on ebay. (He also purchases them). I have always considered the ebay money “his” money, though he sometimes uses it to help pay for joint items or to help with vacation expenses. He got a paypal debit card which is linked to his paypal checking account (which pays interest, by the way).
I have spending issues, and I noticed how he would use his paypal card for dinners for us and special treats for himself, and wished I had that. So we added an Electic Orange checking account (with debit card) to our numerous INGdirect savings accounts, set up a monthly transfer, and viola! I had an allowance. I just started the allowance in October, and already I am much more conscious of my spending, I don’t feel guilty about my spending, and I’m spending less.
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My husband and I have one checking account for bills and one for “petty cash.” The bills account does not have checks, nor does it have a debit card (well, it does but we didn’t activate them). The petty cash has a debit card, and we use that for meals out, haircuts, clothes, etc… (what you call “wants”). A set amount goes in each week, and when it’s gone, it’s gone. Normally we have money left over at the end of the month, and I transfer it to savings.
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Started my cash allowance today.
$100 on groceries on the month.
$300 on discretionary.
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The cash allowance idea is good for limiting unnecessary spending, and I add another aspect: making an allowance (this time, an amount I am trying to spend) for things that I buy that can improve my financial position. Like computer training, information about fundraising for businesses, and such things. This is money you *try* to spend.
After getting used to limiting unnecessary expenses, I am realizing that it is important also to get used to expending some resources to get future returns as well–spending money to enable networking, knowledge transfer, gain skills, or in general discern and pursue financial and personal opportunities.
So I have shifted $50 of my discretionary spending to a “spending to save ” category I learned this idea from RAmit at “iwillteachyoutoberich.com” and it makes sense to me.
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Here’s how hubby and I do the the fun money thing:
Since we are a one-income family (and want to stay that way, since my working would add very little $$—and more spending on clothes/gas/food–to the mix, not to mention stress) we have to count every penny. When hubby gets paid, we automatically take $200 out in CASH and put it in an evelope. That is our discretionary income for the next two weeks, since he gets paid only two times a month. From this, we pay for everything that we may want or need (all our required bills are paid online)
It is an amazing thing when you actually have to PAY CASH for something, actually hand the money over. It makes all the difference in the world. We live in a small town with lousy shopping, but if I am not careful, I can fritter away my money on uneccesary items. So I have to shop online by using the dreaded CC. But when I purchase something online, I take the $$ out of the CASH envelope and place it in the “Monthy CC payment” envelope (we pay off the CC every month and DO NOT carry a balance). We try to keep it at $500 a month. this includes books from Amazon that we just can’t live without, CDs, clothes for me, etc. Since I have to buy 99% of these online, it makes me very conscious of how much I am spending and what I am buying and if I am getting the biggest bang for my buck. Needless to say, I don’t buy too much, but then I don’t need too much. We are in the processing of remodeling our home and have given so much away; it took me months to clean out those rooms, and I figure I wasted about 1.5 years of my life force managing “stuff”, as well as wasting my hubby’s precious lifeforce (his paycheck is paid for in blood, lol, believe me) and I felt ashamed of myself for not being conscious of this. So now I am conscious of every penny, and so is he. Dialogue and communication is key if your budget is a joint one.
As for writing things down, you must write then down IMMEDIATELY and not fall behind, because then it seems hopeless and you will give up.
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Started out with $20 a month and have almost made it through a year (NOT easy!). Helps that together with a very frugal spouse, every other necessary expense is worked into the monthly cash flow. (Including monthly savings allotments for Christmas gifts, birthdays, vacations, etc.)
When it comes time for the annual salary bump, it might be time to increase.
As far as logging this $$, I wouldn’t worry too much about it. Dave Ramsey calls this wiggle room the “grease” that keeps the gears of the remainder of the budget turning smoothly.
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Hello All, first time at the site as I followed link from the YNAB site.
When I setup our budget (first budget in a dozen years), this was something that just made sense to put into the entire process. We each receive $100 for the month, but it arrives in various amounts as the 3 checks a month vary.
Another factor that has greatly contributed to successful budgeting is the program YNAB. Its sole purpose is to help you keep a budget and it does it incredibly well. I have all but switched from Quicken to YNAB as it keeps what is an electronic version of an envelope budget but with greater ease and more power.
Now that we are on a budget life is so much better and to know where every dollar goes, keeps one mindful and practical.
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This works well for me. I give myself $40 per biweekly paycheck and generally use it for lunch at work, the odd parking fee (say a Dr visit), and such, lunch with a friend or a movie. Turns out I spend it slowly as I no longer shop for “fun”, only if I need something. Besides, job is so busy I have no time. I just track it as a $40 “spending money” item on my budget. The $40 usually lasts the full 2 weeks and frankly I feel rich compared to when I never carried cash and charged everything. It is my spend cash fix….
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“I find it easier to track my spending when I use credit or debit cards.”
Well, I do too, because it leaves a perfect record of what I overspent on. But wouldn’t you rather use the cash envelope system and have *more cash* at the end of the month, even if that means having fewer or less-granular records?
I’ll take the less detailed record keeping of using a cash envelope system in certain categories, because the great benefit of the cash envelope system is knowing something that is a lot more important: I stayed within my budget again this month!
A budget is a strategy. The cash envelope is a tactic, and is arguably more important on a day-to-day basis.
Keep in mind that the main need need to track expenses for either a business or an individual is due to the need to determine profitability or for tax compliance. That info is then used to help determine changes in the business (or personal) budget that will increase profitability (or savings). But after the budget is determined, what matters is “execution”-making the budget stick. And that is done at the point of sale or the cash register, not at home in your office. It’s my actual spending behavior in the field that determines the success of my predetermined budget plan. And the cash envelope system is my top, #1 tool for keeping my budget execution in line with my budget planning.
I believe that, since using cash envelopes *by definition* keeps my budget in line better even than tracking my expenses, there is no need to track that cash other than saying “$300 for food in March 2010″ or whatever. I have already met my goal, which is a) to buy the stuff I need and b) do it while staying within a set amount of money for the period.
However, if you think there may be some value in sub-tracking your envelopes, just write the expense down on the outside of the envelope as you spend the money. I find that the psychology of spending a set amount of cash in an envelope takes care of all the concerns that expense tracking would usually address, and does it beforehand and at the point of purchase, where it really matters most, instead of after the fact.
It is perhaps telling that I only use the cash envelope system in categories I know I tend to overspend in/break the budget in: food, entertainment, and (to a lesser degree) clothing. That’s because I know that those cash envelopes do and WILL keep my spending in line.
Keep in mind that budget execution is much harder than budget planning, because budget execution is behavioral, is ongoing and is done throughout the month, and requires psychological habits and tactics, while planning is mainly intellectual (moving numbers on a spreadsheet). The best tactic I have ever found for spot-on budget execution is the cash envelope.
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