As promised, here is the second part of setting up a cash system. If you missed the first post last week, you can check it out here.
I've been discussing what works for my husband and I as we set our budget and implement a cash system. Last time I discussed how we establish our budget amounts and add cash to our envelope system. This time I will answer a few more questions and concerns that were brought up.
I'm a big fan of the cash system. We did that when my husband had a
regular salary. Now that his work is commission based we never know
what his next check will look like, so putting together a new budget
has been a nightmare.
Since my husband is in sales and marketing, and has previously worked on a strictly commission basis (although he currently works on salary plus commission, which is a little easier for budgeting), we have some experience in this area.
I think that there are two major strategies that need to be employed to make the cash system work in this situation. The first is that you need to have a savings buffer. The amount would be up to you, based upon your budget and needs, but I would seek to have at least 1 months living expenses saved up and always in your bank account as a buffer, so that if things are lean or you don't receive the larger portion of the commission until the second half of the month, you have something to use without resorting to using credit.
We are actually currently test driving a budgeting software program called You Need A Budget (YNAB), which we are planning to review in a couple of weeks, once we get a feel for how it works. This program is based on the idea of spending only cash that you have, based on your previous months salary. So in the beginning, you work to save up one months wages, and once you get to this point, you then live off of your previous month's cash. So, right now you would be spending the money that was brought home in October, while saving November's cash for use in December.
Friends of ours run their own web design business, and are currently using this system in order to more carefully budget their ever-fluctuating income. They are finding it relieves so much stress to live on what they know they made last month, rather than what they might make this month. Anyways, stay tuned for the YNAB review, but take a look at the site in the meantime.
The second major thing that I would take into account in creating a budget and cash system is that you need to set up your budget based on a worst case scenario. It doesn't work to budget based on a middle-of-the-road estimate of what you will likely make, because when you hit a month that falls short of that middle ground, your budget will begin to sink.
In my husband's previous job, although he was payed on commission, there was a minimum guarantee, which meant that even in lean months, they would still guarantee us a basic level of pay. Not everyone has a guarantee, but perhaps you know what would generally be the lowest paycheck that you would expect. Base your budget off of this, and allocate your cash accordingly.
If you can train yourself to budget for this situation, then when it happens, you will not go under. And whenever your commission is higher than this amount, you can top up your cash system where the money is needed, or add extra to your savings.
I'm a big fan of Dave Ramsey, but I'm a little surprised to see him
hawking $19.95 envelopes! While they're supercute and may be the push
someone needs to go all-cash, it somehow seems against his "gazelle
intense" approach to getting debt free.
I agree! We didn't purchase these "designer" envelopes until after we were out of debt the first time (which we almost are again- praise God!), because we thought it was way too much money to spend.
When we had no money, and were going hard on our debt, we used either plain old ziploc baggies, or plain old white envelopes from the dollar store. It wasn't fancy, it was occasionally embarrassing, but it did the job and it was cheap!
He also sells a cheaper version, without the fancy leather-look cover. It has the same envelope system inside, but has a laminated cardboard cover instead, so it is not as durable.
Are you ever concerned about carrying around so much cash? I leave most
of our envelopes at home and only carry the "bare necessities" our gas,
grocery and misc. fund envelopes. What do you do?
Good question! First of all, we only keep two weeks worth of our budget in the envelopes at one time, rather than a full month's, so that helps to keep the overall cash amount a bit lower.
Second, we each have an envelope system, so the money is split between the two of us. I keep all of the food/household, the clothing, and half of the recreation, books and music and miscellaneous. My husband keeps all of the gas, and the other half of the categories above. Our tithe is kept at home until Sundays, our rent until the landlord's come to pick it up and our savings is left in the bank account and then transferred to where it needs to go. Our bills are paid online from the account that my husband is paid into.
So, in reality, I never have much more than about $300 in my wallet, at the very beginning of the budget period. Is that enough money to be worried about? Sure, but I have often had that much in my wallet before I started using the cash sytem, for various reasons. And if my credit card were to be stolen, it could be racked up that high before I even noticed that it was gone.
It does make me that much more cautious with my wallet, knowing the cash that is in it (this is a good thing!). But I think that if this worries you, then use a more simple system, such as baggies or individual envelopes, and do as Amy mentioned, leaving most of the cash at home. When we first used the system, I used to only bring with me the envelopes that I intended to spend out of so I wasn't temped to spend extra money anywhere!
I hope that this series has been helpful to those of you considering using a cash system! It has worked incredibly well for our family, and brought a greater level of financial stewardship, and ultimately, peace.