If you have researched how to budget, then you probably have heard of the cash envelope method. This method is not new and has been around for a very long time.
Even though it’s been around awhile, many people still don’t know how it works or the benefits.
Your first thought is probably, “ugh, what a pain!”
It’s grandma’s “envelope system of household budgeting” though you may never have heard if from Grandma. It really was made famous (and a lot more popular) by finance guru and radio talk show host Dave Ramsey. All you need to get started are some ordinary envelopes, either store bought or homemade.
Oh, you also need to mix in some financial discipline. You’ll definitely need that. Lots of it, actually. It’s the whole point of this exercise. Envelopes are simply a means to that end.
The envelope system is based on the whole psychology of people spending less when using cash instead of plastic. You are far more restrained in your spending when you pull money (not plastic) out of your wallet.
That’s one of the biggest benefits to stuffing cash into envelopes for budgeting purposes. It forces you to think twice … and maybe the second thought is that you don’t really need that item, after all.
I know. It’s sooo much easier to swipe your card everywhere…but that’s the problem!
When you spend money with a debit or credit card, you lose the emotional connection with money.
You don’t see the actual cash leaving your hand and being exchanged for the thing you bought.
Using cash allows you to see, feel, smell the money leaving your purse!
You know it’s gone. You know how much you just spent, AND if you don’t have enough, you can’t spend it!
A cash envelope budgeting system will help you stay on track, prevent overspending, and keep you out of debt!
What Is the Envelope System?
The envelope system is a way to track exactly how much money you have in each budget category for the month by keeping your cash tucked away in envelopes. At the end of the month, you can see how much cash is left by taking a quick peek in your envelope. How easy is that. The envelope system is a great tool to help you stop overspending!
HOW TO GET STARTED USING A CASH ENVELOPE BUDGETING SYSTEM?
CHOOSE YOUR CATEGORIES
Take a few minutes and think of everything you spend money on during the month and write it down.
Then put a star next to everything you can pay for in cash. Some common categories that you might want a cash envelope for include:
- Doctors Visits
- Car Maintenance
- Fun Money (Personal, His & Hers)
- Toiletries (Beauty products/Self-care)
The important thing to remember is using the cash envelope system starts to create new spending habits and helps you be more intentional with your money.
DETERMINE YOUR BUDGET AMOUNTS
Figure out how much you want to spend on each category. For categories that you tend to overspend on, find a limiting value and set your budget value to that.
FILL UP YOUR ENVELOPES
When you receive your paycheck, withdraw cash and fill up your envelopes according to your determined budgeted amounts!
DON’T CHEAT! IF THE ENVELOPE RUNS OUT OF CASH, YOU ARE DONE.
Grocery budget short this month? Get creative with your meal plan and see what you can make with what’s in the pantry.
Amazing sale going on at your favorite clothing store? If you don’t have the cash in your envelope it will just have to wait until the next one. Yes, there will be another sale!
IF AT FIRST YOU DON’T SUCCEED, TRY AGAIN!
Sticking to a budget and paying cash is not easy.
The concept is easy, but it’s very difficult to completely change your behavior.
It’s hard to go from an “I deserve this” mentality to a “I want more for our future” mindset.
You will only fail if you quit! Instead of giving up, make adjustments, revisit your goals, and just make it work!
To get started on your cash envelope system, Download my FREE cash envelope template below.
Goodluck! Keep me updated on your cash envelope challenge.