Wednesday, February 27, 2008 at 1:59am

Dear Dave,

I’ve listened to you for a little while now, but I was wondering about the envelope system you recommend. How does it work, and how much do you suggest saving for emergencies?

— Dale

Dear Dale,

The envelope system is simple. It’s just grandma’s old-fashioned, common sense way of budgeting money.

Back in the old days when people were paid in cash, they would take their money and divide it up in different envelopes. These envelopes represented the different categories in their budgets — food, clothes and whatever else they needed. When a particular envelope was empty, they stopped buying that particular item because the money budgeted for the category was gone. So, if you wanted a shirt but the clothing envelope was empty, you didn’t buy the shirt that month. It’s just a simple cash system that keeps you from overspending.

Today, we don’t use it that way for every single category, but it’s always a good idea to at least use it for food and clothing. These are two areas where most people tend to bust their budgets.

A fully funded emergency fund is three to six months of expenses. So, if your total monthly expenses are $2,000, you’d need between $6,000 and $12,000 in your emergency fund. Think of it as your rainy day fund, Dale. You’ve heard the old saying, “Into every life a little rain must fall”? Well, the emergency fund is your umbrella and protection in these cases.

Trust me, if you live very long you’re going to have some rain in your life. And your emergency fund will keep you from getting soaked.

— Dave

Dear Dave,

I’ve been trying to help my sister figure out her financial situation, and it’s a real mess. She makes good money, but she has a lot of debt. At what point to you recommend bankruptcy?

— Jamie

Dear Jamie,

I tell people to file bankruptcy about as often as I tell them to file for divorce. In other words, I don’t. Like many of the divorces today, most bankruptcies are the result of people just giving up.

If your sister is asking for help, she’s probably feeling hopeless and overwhelmed already. When you sit down with her, get her to step back from the situation and think logically, not emotionally. She may have to sell some things or take an extra job to make this work. Living on a very strict, written, monthly budget will be a must!

But make sure she takes care of necessities like food, shelter, clothing, transportation and utilities first. She may take a few dings on her credit along the way, but in most cases you can map out a plan to get caught up and be financially on your feet again in two or three years.

Her finances may be out of control, but chances are she’s not bankrupt. It may take a little while — along with a lot of hard work and going without things she’d like for a time — but you should never file bankruptcy over a problem you can solve in two or three years.

Walk her through it, Jamie, and be there for her. Most of all she needs a plan and the hope that goes with having one in place!

— Dave

For more financial advice plus special offers to our readers, please visit www.davesays.org or call 1-888-22-PEACE.

Filed under: City Business
By: HokeyPokey on 12/31/69 at 6:00

Will no one rid us of this meddlesome preacher?

By: officermed on 12/31/69 at 6:00

You're either kidding or very misinformed. Dave is not a preacher and the term "meddlesome" implies that he inserts himself into other people's problems. Everyone that he is trying to help has contacted him for that help. He is not out on the street corners trying to grab passersby to meddle in their problems.

By: evangelist on 12/31/69 at 6:00

Dave gives good, sound, wise, advice. People ask him for help; he doesn't solicit. If you don't agree with or like him, just don't read his columns.

By: theplantsman on 12/31/69 at 6:00

Dave is an entertainer. No significant difference from Ed Schultz, or Sean Hannity. For those that need more than the basic financial advice (balancing a checkbook, not overspending, etc) one would be smart to seek the advice of a professional who has earned any of the following professional designations: CFP, ChFC, CLU. I personally recommend the professionals at Ameriprise. My personal financial advisor is Gary Ward in Brentwood, TN. Gary is both my mentor and my financial coach.

By: OneTimer on 12/31/69 at 6:00

People don't like Dave because he advises them to do things they don't want to: spend less, save more, live within your means, get out of debt at all costs, control emotional spending.

By: gdiafante on 12/31/69 at 6:00

Isn't it interesting that the reason the economy is tanking is because eventually you actually have to pay the bills.

By: Idahoser on 12/31/69 at 6:00

Jeez, you come here and read his advice just so you can complain about it? What the heck is wrong with you? It's not like he's running for king or something, he's here to help if you want it."The right thing" is boring, it's hard, it's so 'icky' nobody wants to do it. Look around you. This country is in the shape it's in because we don't do enough of what Dave "preaches". GTH, HK. This is real life.

By: Idahoser on 12/31/69 at 6:00

plantsman, it takes a degree to know right from wrong, huh? Like it takes a law degree to understand the Constitution? Dave's words ring true to me: the advice your grandma gave. Anything else is an excuse for why you did it wrong.

By: theplantsman on 12/31/69 at 6:00

Idahoser, apparently you did not know the difference between “designations” and “degree”. Moreover, comparing the United States Constitution to comprehensive financial planning is not even a fair comparison, which indicates that you know little about either. Moreover, Estate planning alone is far more challenging than any part of the United States Constitution. More so, I have known Dave for sometime, and if he were as financially astute as he would have you believe he is, then he would not have filed for Chapter 7 bankruptcy. Yes, he has done well for himself since then, but I prefer to receive my advice from someone that has built his/her wealth and has managed NOT to be bankrupt. As to “the advice your grandma gave”. Unless, your grandma is under seventy years old, then she probably did not have enough money, much less consumer credit debt to worry. Therefore, financial planning beyond paying taxes was not a concern. BTW, have you ever noticed that Dave will never allow a financial professional to debate him on the air? Do you not wonder why?

By: gdiafante on 12/31/69 at 6:00

Who cares? If he gives sound advice that helps people climb out of debt, why do you care?