5 Reasons I don’t Use Dave Ramsey envelope system

In the last few years, the envelope system has been pretty poplar with people that want to manage their money better. The system is designed to help you manage your spending and make you more accountable with how much and how you spend your money.

As a person that had to pay everything with cash for most of my life, I don’t agree with this system at all. I can make a list with all the things that is wrong with this whole idea. However, many people say that it helps them and that they are better financial due to the Ramsey system.

I have 5 reasons why you should not do the envelope system and better ways to manage your money that will not only help with making you more accountable it will help your money make money for you.

Paying in Cash

If you need to fix or build your credit paying in cash will not help with this. (Trust me on this) I have been living a low-income life for a long time I can tell you paying in cash did not build my credit. Infact, I had no credit due to this reason.

In the world that we live in credit is everything. Your credit score can stop you from doing and having the life that you want or see yourself having. It can be the reason people are unable to live in nice Neiborhood’s, it can stop you from being a homeowner, it can also be the reason you can’t buy the car that you want.

Paying in cash is not going to help with any of that. Most of your day-to-day bills do not report to the credit burials. Your car most of the time doesn’t show up on your credit tell you miss a payment, or it gets repo. Your rent does not show on your credit report unless you have a judgment against you for not paying rent or you are evicted.

No Accountability

There is nothing stopping you from taking money from one envelope and using it for whatever you want.

example:

If you have an envelope for kids’ haircuts and you don’t use it that month there is nothing stopping, you from taking the money out and using it to get shoes or clothes.

Question?

What do you do with the money that you don’t use?

Do you put it back in the bank at the end of the month?

Do you keep adding money to it every month even though you are not using it?

How is this giving you accountability?

How is this stopping or changing your spending habit?

If you really want to be accountable for your spending, go on a “No spending Freeze week or month”. Make a budget and stick to it, use the 30-day rule (this is where you place something you want on a list for 30-days if you still want it after 30-days then buy it). Track your spending monthly or paycheck to paycheck.

Safety

Having a large sum of money in your home is not safe. Taking money from a secured account to stick in a box in your closet is not good money management at all.

So, let’s talk about you driving to your bank taking out a large sum of money to drive to your home to stick in an envelope. (You may want to read this twice) In no way shape or form is this safe.

We don’t live in a safe world; you don’t know who could be watching you or following you for that matter. You could be robbed or even killed.

What happens if you lose your money? I have seen wallets that now have cash envelops in them. Budget planners with cash envelopes systems.

If you drop, misplace or leave your wallet and or planner that money is gone (you just helped someone else have a great day).

If it doesn’t make dollars, it doesn’t make since

Money in your home is just money to spend or collecting dust.

It’s not doing anything for you or your financial growth. There is only one or two outcomes. You will spend it, or it will just set.

If you place your money in a high yield account, your money will make money for you once you have at least $2,000 or more in your account.

I make it a rule that if my finances are not being used then it needs to be making money while it’s setting.

You’re not changing your habits

Taking money from the bank to give yourself cash on hand is not changing your money habits.

The ideal of sinking funds (as they are called) with the envelope system is not good money management. The ideal of managing your money is to only spend on the things that you need. It’s freeing up money to paydown debt, save and invest your money for the future or to live a debt free life.

Having money on hand will keep you from accumulating more debt however it will not teach you how to stop overspending. I get the concept of not overusing your credit cards, but you don’t have to be in credit card debt if you use them wisely. You don’t have to take out loans if you learn to put money way.

There are apps and banks( like Capital one) that allow you to open multiple money market accounts that you can utilize as sinking funds. So instead of having money in your home you can have it in an account. You can have as many as you need for what every you need.

It’s called digital sinking funds and I have been using this method for a few months now. Each account has it own name and purpose, I transfer my money from my checking account in to each savings account at the end of the month.

Some budgeting apps and online banks call it buckets. I know that Chime bank has buckets that you are able to put money into for financial goals that you are trying to save for.

This is so much better then taking money OUT of the bank to keep in your home.

These are high yield accounts so every sinking fund savings account or bucket savings account allows your money to make money while it’s in the accounts. If you need to use the money there is no penalty and taking money from the account is as easy as transferring the money to your checking and using your debit card. You can take the money out of the ATM if you like.

All and all this is much more safer then cash envelopes and its good money management. It also teaches you accountability allows you to develop good habits when it come to your financial health.

Well, that is all that I have for today , I hope this helps you on your journey.

Thank you for reading Everything Frugal.

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