Budgeting w/the cash only system

This month marks two years that Billy and I wrote a budget and went cash only. We had dabbled in it in the past, but never stuck with it. It is much like a diet in that sense. I have had readers ask me before to explain our system, but I wanted to make sure this system was going to stick and last before I went spouting off anything like it was the gospel. After two solid years of living credit card free, I think I can honestly say....it works, you can do it, it will truly change your finances. Now, keep in mind I am no Suze Orman (yes, it's spelled that way, my smart husband and google confirmed it)...so don't go asking me for 401K advice or stock options, or saving for your kids college funds. I am just trying to get food for my kids, eat out every once and awhile, and be able to save for next summer's trip to the beach. That is the extent of my money knowledge.

But what I can tell you, is how to get out of debt. It won't be fast. It won't be easy. But it can be done. We are halfway there. And that says a lot because we had a HUGE mountain to climb. A little bit of background on what got us here...

In the spring of 2008, we found ourselves with 2 kids on one income and in major trouble. In an attempt to lower our monthly expenses, we chose to sell our house. At that time we also had quite a lot in credit card debt rolling over every month and virtually nothing in savings. Thankfully we did not have store credit cards to worry about. They were all major credit card companies, one of which I had had since I was in college. Our house got 2 bids in 20 days and our not so savvy real estate agent, had us go with the couple that had no down payment. The day before we were to close, and happened to have our whole house packed and ready to move into our tiny apartment...they could not get a loan. So our not so savvy real estate agent advises us to let them rent it for the month until their loan is approved and then they will buy it. So we move out, have them sign a lease contract that seemed full proof, and moved out. They paid that month's mortgage and before the next payment was due they up and move out. We contacted a real estate attorney who advised us not to pursue them because the expense would far outweigh the outcome. So here we are living in a 2 bedroom apartment, paying rent and stuck with a couple months mortgage on the house. All of our money was tied up in paying these two bills, along with our moving expenses...so we began to have to live off our credit cards for a period of about 4 months. It was devestating. In that time, every single purchase...just about...went on credit cards. That got us into a financial crisis. We approached our church, who helped us and put us in contact with an amazing financial coach who put us on a very, very strict cash only system and budget. This budget sheet below is similar to the outline of what we do every month. He taught us to "allot what you will pay before you buy", so we became intentional about what we purchased. Gone were the days of the random diet coke at 7-11. Our coach taught us how to surrender our finances to God, how to pray for His guidance, and how to practically deal with our finances. We began to create envelopes for groceries, gas, birthday gifts, eating out, dr. co-pays and meds, dog expenses, clothing, giving...etc. We put a set amount of cash in each pay check and when the money was gone, we would no longer purchase from that category. This forced me to be a savvy shopper so I could stretch our cash. He also had us begin to aggressively pay off the highest interest credit card, cut them all up, and commit to never using credit again for anything. At that time we also began to put money each month into an emergency fund which once we got to $1,000...we were to stop putting money into and begin to put that money towards the credit card. This ensured that in the case of a need arising, like a flat tire or a dr. bill...we would have money and not have to turn to a credit card. This also allowed us to pay one card off completely in about a year. In addition to the envelopes we created a "Freedom Account", which is just an additional checking or savings account that you put money into for expenses like auto maintenance, Christmas, Birthday parties, vacations, etc. That way you are intentionally saving a set amount each year to cover those expenses that always come up. You can learn much more about this system from daveramsey.com (we have done his Financial Peace University in the past), which is where you can purchase envelopes like these:

Or from Crown Financial Ministries which is the system we do now (we use just plain white envelopes). Many churches use one of these systems to teach their members about managing their finances, so your church may be just the place to go for help. I warn you not to get into the trap of saying "well, I can use my credit cards because I pay them off every month"...we did that for years, but then what happens when a lean month comes and you can't pay it off...then that month turns into a year. I understand people who travel and have to use them for business expenses, or who live internationally and have to use them for online expenses and airlines. The bottom line is, if you budget and have worked into that budget paying off your credit care entirely...and are disciplined to do so, you can make it work for you. Just make sure you are saving aggressively every month as well. What this has meant to us is, in 2 years we have paid off half of our debt, we have a month's worth of expenses in our savings account, we bought furniture with cash, we have done two Christmases now and are on our 3rd of no credit card usage, we have taken 2 cash only vacations, and we were able to move out of the tiny apartment into a four bedroom house. Billy also quit his job at S.tarbucks and was hired by a mortgage company that thankfully is able to pay us a little more. We are currently trying to wipe away all of our credit card debt in the next two years, save for our vacation to Florida next summer, and will begin to think about saving to move out of this house in the summer of 2012. Billy works two jobs and I have done some childcare over the past 2 years. I am still actively pursuing some kind of part-time income. I had a family set to come interview us this weekend and after cleaning the house and prepping for their arrival, they were no call no shows. So, so aggravating. But I will continue to trudge along. I have learned over these "lean" years that God does provide ALL that we have. Our children are abundantly provided for with food, clothes, shoes, toys. This usually means I have to be intentional when asking for gifts from family members for their birthdays and Christmas. We intend that no matter what our income is, we are committed to continue to strive to be good stewards of our finances and our spending. We continue to reevaluate "needs" vs. "wants" and are hoping to raise our kids to learn good money management skills. We are thankful to God that we learned these hard lessons early in life. We are hopeful for what the future will bring. We don't desire to ever be "rolling in the dough" in an attempt to live lavishly. We want to use our resources to build our family, allow me be able to raise the kids, contribute to the Lord's work, and support our children's endeavors. Learning how to earn money, how to spend it, and how to give and save it makes us appreciate all the more what we have and can do with our money. It is only by God's continual grace in our life that we are able to do what we do and have what we have. We hope to continue to honor Him with the income that He has given us.