A Simple Guide to the Cash Envelope System
Written by my sister Carolee, this is a guide that will teach you everything you need to know about the cash envelope system. This post covers the pros of using the system and gives you helpful, actionable pointers to get started. There are also some helpful tips on how to implement the system and some suggested cash envelope categories. Take it away Carolee!
Why I Love the Cash Envelope System
None of this opening up my budgeting software, looking up the month, finding the category, and seeing how much $ is left for the month. I never did that anyway.
Now, I just have to look in the envelope and I know exactly how much we are allowed to spend on something. If there’s not enough, then it will have to wait. End of story.
Peace of mind
I don’t have to worry or wonder if I’m going to overdraw or exceed my credit limit.
It helps me save up for things
Some months you won’t use everything in your envelope, and that’s great, because you may need more in other months. I notice this happens especially often in the “Holidays and gifts” category.
In my family, there is only one birthday in February and March, but there are 8 birthdays between April and May, plus Easter and Mother’s day. So I can just spend a little from that envelope for gifts in February and March, and save up the rest for the busier months. Or, I can plan ahead and buy some gifts for April and May birthdays in February and March (Plan ahead? What’s that?).
The envelope budget can also help you save up for specific things. For example, you could have a “home decor” envelope to save up for a larger item instead of putting “extra” money in your savings account where you might accidentally spend it.
I spend one day a month on the budget and that’s all
That one day per month is spent filling my cash envelopes and then after that, all my envelope categories are budgeted for the month.
Then, once or twice a week, I check my bank accounts online to keep up to date on my bills and any debit card transactions. This also means I spend SO much less time working on the checkbook because now there are fewer transactions to record.
It’s been great for my marriage
My husband and I have a “spending” category for each of us, so we each get our very own spending money every month to do with as we please.
I can save mine up for something I really want, I can go out to lunch with my sisters, I can buy myself a milkshake, or whatever else and with NO GUILT! As for my man, he can now go to town at the comic book store but when his spending money is gone, it’s gone!
We are both a bit more discretionary with our “own” money now, and we don’t have the “how much did you pay for that?!” conversations anymore! It is awesome.
Getting Started with an Envelope Budget
Getting started with the cash envelope system is going to take you a bit of time, but once you have the system in place it’s smooth sailing. Here are some tips to help you get set up:
- Use your current budget – If you already have a budget set up and it’s working, you can simply transfer it into your envelope budget. If you don’t already have a budget, learn how to set one up.
- Write down your cash categories and how much cash you’ll need for each one for a month – Note that you can still pay your monthly bills from your checking account (i.e.: utility bills, rent, debt, insurance, medical bills, piano lessons, etc.).
- Be sure to budget in some fun (like a family recreation envelope, date night, and/or spending money!) – You are much more likely to stick to a budget and this system if there is some money in there for you to do some fun things with.
- Pull out some plain old regular envelopes – For each of your cash envelope categories, you’ll need an envelope. Write a category name on the front of each one.
- Head to the bank – Withdraw the cash for the month and distribute it into your envelopes.
Cash Envelope Budgeting Tips
Distribute money if needed
For example, if you have someone in your house who doesn’t usually do the grocery shopping, give them a bit of money from the grocery envelope each month anyway. That way they can help you out when you call and ask them to grab a gallon of milk on the way home, etc.
Figure out how many of each denomination you will need
For instance, I like to have plenty of 1 and 5 dollar bills for the “date night” envelope, so I’ll have exactly what I need for the babysitter or the tip at the restaurant. So I will make columns on scratch paper, and figure out how many 50’s, 20’s, 10’s, 5’s, and 1’s I want.
When I go to the bank, I tell them (or have it written down for them) exactly what bills I want for my cash envelopes. I used to feel self-conscious about withdrawing so much cash and asking for “13 one’s” but, I got over it, and the bank teller’s don’t usually give me weird looks, either.
Start out with actual envelopes
Try it out for at least 3 months. Keep the envelopes in your purse, and just replace them if they get ragged. Then, if you decide you love this system, you can get yourself something a bit sturdier to keep your cash in.
Some websites like Dave Ramsey’s have “cash envelope system” wallets you can buy, and on Amazon, you can find some coupon organizers (that you can use for cash instead) that fit in your purse. Just make sure whatever you buy has enough compartments for each of your categories.
After using the envelopes for over a year, I just finally got an accordion style coupon organizer that I really like so far!
Make a Christmas envelope
Determine an amount you think will be reasonable to spend on Christmas—shopping, baking, parties, decorations, etc. Divide that number by 12 (or if you are starting in June, divide that number by 7, etc.) and make a Christmas envelope that you put that amount in each month. (If you can’t afford the amount that you came up with, it’s time to trim down on Christmas.)
This envelope is a life-saver because once you are ready to start your Christmas shopping and decorating, you shouldn’t have to use your credit cards at all, just keep that Christmas cash envelope with you.
Here are some ideas to get you started with your envelopes:
- Children (clothes, school expenses/fees, etc) – I still pay for their piano lessons, swim lessons, preschool, and other such activities from the checking account and this is a separate budget category.
- Personal Care (haircuts, etc!)
- House and Yard Maintenance and repair
- Family eat out – This is for those nights when we just have to buy a pizza (although, if you have some freezer meals, you can pull one of those out instead of buying pizza on those crazy days) or for saving up and taking the whole family out to dinner every once in a while.
- Date Night
- Clothing – This one is for my husband and I—and it’s for clothing NEEDS, not wants. This is so we don’t have to use our own “spending money” envelope when we need new underwear or a new pair of athletic shoes, etc. It is NOT for those new stilettos you can’t live without.
Common Objections to the Cash Envelope System
“I don’t want to carry that much cash around—what if I get mugged?”
Ok, I suppose that is a possibility, but no more a possibility then when you carried 10 credit cards, right? Unless you go around with a big sign on your purse that you have a whole bunch of cash in there, no one will know that you aren’t just carrying around plastic like everyone else. Just be smart with your purse, like you should be anyway!
Also, you don’t really have to carry all your envelopes with you at once. If you’re going grocery shopping, take your grocery envelope with you. If you’re getting a haircut, take that envelope, etc.
“If I have cash, I just spend it.”
If you know that’s all you get for the whole month, don’t you think you’ll be a little more discretionary with it? If it’s a consistent problem, it might also be that you just didn’t give that budget category enough $ and maybe it’s time to adjust some things in your budget.
“I just can’t imagine not using my credit card.”
Sounds like it’s time for you to read Dave Ramsey’s Total Money Makeover. He will help you get over the social expectations to use plastic.
Give the Cash Envelope System a Try!
It may sound hard, but trust me, it’s great once you get started! You’ve just got to commit to trying it for at least 3 months to give it a fair chance. It will be a big adjustment and take some time to work out the kinks, but you can do it!
If you feel like you need to get a better handle on the money that seems to keep leaving your bank account without your permission, this is the way to go. Good luck!
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