Once long ago my family went on a cash only, envelope system budget. For those of you who don't know, this involves withdrawing from your bank account all of the money that you would normally spend while out and about during the month. This would include things like dining out, groceries, clothes, etc. These are things that you can control your amount of spending on from month to month. This does not include purchases such as house payments, insurance, and other fixed monthly payments. You can do this monthly, or each time you get paid. Once you have the cash, based upon your budget, you organize the cash into separate envelopes that are each labeled with the category of spending that it is assigned to. This system works great. When you are out of money in the dining out folder, then you can't eat at any more restaurants until next time you get paid. Unfortunately for my family, this system was overly burdensome. Here are a few of the cons that I see when using this system:

• It is a pain to go to the bank every pay period and ask for cash in certain denominations. I would have to ask for a specific number of 20s, 10s, and 5s in order to properly divide the money between me and my wife's envelopes.
• You end up carrying a large amount of cash around with you. Often we would leave the envelopes in our car with several hundred dollars in them at the beginning of a pay period.
• When you are going into a store like Target or Wal-Mart, it's very difficult to know which categories of cash you will need: Household? Groceries? Clothing? (unless you have very specific items that you will be purchasing and stick to it).
• You can take your whole envelope system in the store, but who wants to be standing at the checkout line pulling a few dollars out of each individual envelope while people are waiting for you.

What we have started doing is a modified envelope system. Instead of physically putting cash into individual envelopes, we just carry around a notebook or and old check book register. At the top of each page in the register, write the name of the category. For example, I may take out $300 cash, putting $100 in my wallet and leaving the rest at home. Then in my register I would record a deposit of $50 in my dining out category, $100 in my groceries, etc. When I go to the store, all I have to do is glance at the category pages in my register to verify that I have the money to purchase what I need. After running to McDonalds, I will then make an entry in my register and subtract the $5 that it cost, leaving me a balance of $45 in my dining out category. Simple enough? Here are some of the reasons that this system works better for my family

• I don’t have to get small bills at the bank in order to divide the cash into each category. I can just run by the ATM.
• You can leave some of the money at home. Since your categories are virtual, you only need as much as you are likely to spend that day.
• You can categorize your purchases after you have left the store. Just keep the receipt where you’ll remember it and then make entries into your register when you get home.
• Less stress!

Let me be clear that I do understand the reason that Dave Ramsey recommends this method in The Total Money Makeover. If you are intensely budgeting in order to pay off debts and you have never worked with a budget, then the envelope system is a very visual method of budgeting. I on the other hand have been budgeting for years, but only recently chose to go all cash. For me, this modified system is the best of both worlds.