When I was fresh out of college, I was self-employed for about two years. I had my own photography business and also worked for two wedding photographers as their office manager. I edited thousands of photos weekly, designed wedding albums, ran errands, and so on. I got very friendly with Aperture and Adobe Photoshop. I had a great time over these two years, but there was something I did not have much of during this stage of my life: money.
Looking back, I am amazed at how little money I made. Let’s just say it was in the ballpark of $13k after taxes. It’s also important to note that 15% of what I paid in taxes was non-refundable self-employment tax. Somehow, I was able to get by just fine during that time. It’s not really “somehow.” I know how I managed to get by – I used the envelope system.
For those of you who are not familiar with this method of budgeting, it’s really quite simple. You withdraw the money you have budgeted for all your spending for the month (or two weeks, depending on how your employer pays you), divide it into envelopes marked for all the different categories of spending that you have and voilà. You only use cash. When the cash is gone, you simply cannot spend any more on that category until you get paid again.
Doing this allowed me to pay for rent (I shared a 4-bedroom apartment with 3 other girls), utilities, groceries, my student loan, gas and miscellaneous expenses. In the interest of full disclosure, I did not pay the $50ish a month on my car insurance nor the $70ish a month for my “major medical” health insurance plan. I have my parents to thank for those investments. However, with such a meager “salary,” I was still able to get by and put enough money aside to be able to afford to fund my 2 month trip to Germany to visit John and get engaged.
Once we got married, I discarded this method of budgeting. John and I used our debit and credit cards, always paying off the full balance of the latter each month. However, we recently decided we were dipping into our short term savings account a bit too frequently for our liking in order to pay off our monthly credit card bill. Enter the envelope system. It was a bit trickier for us this time around, because we spend both in Euro and US Dollars. We had tracked on our spending through Mint.com, though, which allowed us to come up with an accurate Euro/USD budget for each of our spending categories.
We have been back on the envelope system since September 1st, and both of us feel much more relaxed about money now. I used to worry constantly about how much we were spending and where our money was going, and last night, I realized I haven’t had any money worries in weeks. I think that’s quite a feat when you have a little one on the way! The only real money concerns we have these days involve the uncertainties of what job opportunities, if any, will be present for me when we move back to Austin.
And in case anyone is wondering, I will list our spending categories. Everyone’s is going to be different, but we have found this works best for us.
- groceries
- gas
- Beni (primarily for food, any left over funds are kept for vet visits)
- bills
- restaurants
- shopping/miscellaneous
If you have any questions about the envelope system, please feel free to ask. John and I are both happy to talk about it more!
Jim and I use the envelope system as well and love it! It’s amazing how little you can spend when you know where it’s going! We’re also paying off major amounts of debt (car and my student loan) and it just amazes me how much money we could potentially waste each month if we didn’t watch it closely!
i’m passing this on to my sister whose 19 year old daughter is struggling with cash flow/management issues. i think this could really help her!! thanks so much for sharing!