Why The Cash Envelope System Didn't Work for Us

Now let me preface this by saying I am a huge fan of Dave Ramsey and I see the wisdom in all of his teachings. Now that said, I readily admit I don't follow everything he says. One area in which I don't follow along is with the cash envelope budget system.

I think the system is excellent. I do believe it "hurts" more to spend cash. It is hard for me to break a $20. I like that fact that when I spend cash I usually end up with change that becomes savings because I never spend change (I don't know that Dave ever mentions that one, but it is a nice bonus).

My wife and I tried the cash envelope system. We gave up after only two months. Here are the reasons why:

1. Inconvenience. Let's face it, debit cards make life so much more convenient. It is not convenient to got to the bank or ATM once or twice a month to allocate cash in your envelopes. I hate waiting in line at the bank so I avoid it at all costs. My credit union now allows me to scan checks from home and deposit them online - even less reason to ever go there.
2. Inconvenience. Yeah, same reason, but different. It is inconvenient to pay with cash. Grocery stores are not so bad really - unless you use the self-checkout, which I often do - again, because there is usually no lines there. Putting cash in those machines is downright painful. And really, who pays for gasoline with cash anymore?
3. Location of the envelope. It's happened on more than one occasion that my wife is making dinner and finds she is missing an ingredient. So what does she do? She calls me and asks that I pick it up on the way home from work. If I don't have enough blow money in my wallet I reach for the debit card.
4. Have you ever reached the checkout and when it is time to pay you realize you don't have your wallet. That is really mortifying to me. I'm frantic in that case. I start looking through my car for a hidden $100 bill (it's never there) or a blank check (never there either). Even if I only live 3 blocks away it is inconvenient and super embarrassing. If you forget your envelope and you don't realize it before you get in line to checkout, are you really going to go home and get it? Not me, I'll pull out the debit card again. Of course my intention is to go back to the bank and deposit the amount of cash I spent, but I don't because that is so... inconvenient!
5. While it "hurts" me to spend cash, it seems to have the opposite effect on my wife. If money talks, all it ever says to my wife is "goodbye". I'm not being rude here. She readily admits this. It's not more difficult for my dear wife to spend cash than it is to spend money in any other way. In fact, I think it is sometimes easier for her. It seems to call out to her to be spent! OK, now I'm being rude :D.

Let's face it. I love debit cards. What I like about them is that if you use your debit card as a debit card (as opposed to credit card) it withdraws the cash out of your account immediately. Your bank account balance is updated immediately (at least where I bank it is).

Here are some more things I love about my debit card:

1. It is free to use. I have a free checking account. I don't have to pay for new checks as long as I use my debit card.
2. My bank let's me customize it. I generally put pictures of my kids on it so people can tell me how cute they are. I sometimes wonder though if my bank would be opposed to me scanning in my drivers license so people don't have to ask for it when I use my debit card in place of a credit card. :)
3. It's thin. With all that cash, your wallet can become a pain in the butt - literally.
4. It doubles as a credit card. For those places that don't accept debit cards but can take credit cards, my debit card works fine. I generally have to wait a day or two for the transaction to appear on my bank statement though.
5. Did I mention it is convenient?

So, how do we make use of the timeless & effective envelope budget system with debit cards? We use Inzolo.

Whenever I get income, be it a paycheck or any other form of income, I decide where we are going to spend that money and allocate it to various virtual envelopes.

Whenever we spend money using our debit card, the transaction imported lightning fast into Inzolo and I specify what envelope that money came out of. I can visually see all my envelope balances. If I go over in an envelope I can easily move the exact amount I need to cover the difference from another envelope.

It's basically like haveing dozens of savings accounts set up in your bank and deciding where each transaction will come out of. I can even split transactions so that different portions come out of different envelopes.

Inzolo also has a mobile web interface. My wife and I both have iPhones. So we can pull up our Inzolo account anytime and see our envelope balances.

So if you love the idea of the cash envelope system, but don't feel you have the will power to stick to it, I urge you to give Inzolo a try.