How the Cash Envelope System cut down our spending
If you haven’t ever landed on the perfect way to budget, I can relate! I have tried many different budgeting techniques during our 13 years of marriage. The most visual budget I have used is the cash envelope system.
Since we got married, we have flipped back and forth between using debit cards and cash. The problem we ran into with our debit cards was that we needed to keep receipts on hand to take home and write down what we spent.
Other adults told me I should keep a checkbook register with all my debit card purchases written down.
However, my best efforts at writing down each transaction failed after about two months. I am not good at dedicating to inconvenient processes that slow me down. Instead I opted to get online regularly and look at the transactions and enter them into our budget.
Still, we tended to go over budget or overdraw our account.
When we transitioned to cash envelopes, we found it so much easier to stay on budget. The following steps were the 5 “musts” of our cash envelope system.
Decide which of your budgetary categories work best for cash spending.
Your first order of business is to review your budget and pick out the categories that you can use cash for. I don’t use cash for things like gas, or other necessities that are not flexible and discretionary. I personally use the following categories for cash envelopes:
- Dining out
Next you will count up your cash categories and gather paper envelopes, or buy a hand-sewn envelope from my friend Melissa at A Time for Everything. Melissa makes her envelopes out of oil cloth, and fills them with hardy plastic dividers and labels. These amazing envelope pouches don’t end up crumpled and dirty at the bottom of your purse like a paper envelope. My cash envelope from Melissa has seen a lot of use.
Fill your envelopes.
Your next step is to decide on your monthly budget at the beginning of the month for every category of your spending. Write down how much cash you will need to take out for each of the cash categories each paycheck, and total them up. Note down if you need any $1s, $5s, or $10s to make your envelopes come out right. Each time you get paid in the month, go to the bank and take out that amount.
Deposit spent envelope money.
If you spend envelope money online or on a debit card, take money out of the appropriate envelope and put it in a special “deposit” envelope. Deposit the money next time you are at the bank.
This might sound silly, but if I have deposit money and money I need to withdraw more, I actually deposit the money first, then withdraw the new envelope money. That way my online records will reconcile.
So for instance, if I spend $20 on Amazon, I will deposit $20 cash from the “miscellaneous” envelope into the bank. This way when I see this transaction in my banking, I will recognize that the expenditure on Amazon and the deposit money balanced out, and I didn’t spend an additional, over-budget $20.
If the money is not there, don’t spend it!
Finally, don’t be tempted to pull out the plastic. If credit cards are a temptation, remove them from your wallet and cut them up or put them in a different location for safekeeping (away from burglers AND your own fingers).
Are you motivated to try a cash envelope budget? These five simple steps will get you started. Do you need a cheap, easy budget? Head over to my Etsy shop and grab my simple Excel budget template to get you started.