The cash envelope system is a spenders godsend when it comes to budgeting.
This easy way of budgeting will keep you from going over budget, and help you stay accountable and on track with your budget.
While using a paper envelope to keep your money in each month might seem a little bit old school or just downright ridiculous, if you have trouble staying on budget then you need to be using this method! No matter how silly it looks before you begin!
This method of budgeting comes from Dave Ramsey and is great for paying off debt and staying on budget! Here is your ultimate guide to the cash envelope system.
What is The Cash Envelope System?
If you don’t know what the cash envelope system is or maybe you’ve heard of it but never actually put it into practice, then you’re going to want to stick around for this.
The cash envelope system is when you turn your budget categories into cash envelopes.
Rather than swiping a card, or pooling all your money together, you keep each budget category in an envelope and use cash from each category to fill it.
This system will let you see how much you have in each category as it will be in an assigned envelope. Once your envelope is empty, it is empty, and then you can’t spend any more money on that category until you get paid again to replenish it!
There’s nothing more accountable than single dollar bills staring at you when you know you have to last another 8 days until you get more money! After a week or so… you get really good at spending the money you predetermined so that you make it last.
How to Use the Cash Envelope System
Using the cash envelope system is easy!
This system is best used for variable expenses. If you prefer, you can make all your budget categories into envelopes, or just the ones that bust your budget. Some good examples include groceries, entertainment, eating out, etc.
For example, if you have $400 budgeted for groceries then you will withdraw that amount from your bank account and put it in an envelope labeled Grocery. If you are paid biweekly, then split it in half and add to your envelope each paycheck.
This is your grocery money for the month and should only be used to pay for food at the grocery store. If you are about to go grocery shopping, take only what you need to cover your expenses with you.
When the envelope is empty, it’s empty! If you want to get more groceries but your envelope is empty, it’s time to start digging through your fridge and pantry to get by until payday.
How to Set Up Your Envelopes
To get started, you need to decide which categories in your budget should be used with cash envelopes.
That means when you look at your budget, what categories could you pull out and use cash for them?
Your mortgage, car payment, and power bill don’t make good envelope choices because you don’t typically pay for them in person.
Not every category in your budget should be put into an envelope!
Your cash envelopes will probably not be the same as anyone else.
For example, my family uses a Disney envelope to go to have family fun once a month at Disney World in Orlando. If you do not live close to Disney World then an envelope for Disney doesn’t really make sense for you. (note: here is how we do Disney World on a dime)
I don’t have a golfing envelope, but your budget might.
The one expense that usually confuses people is whether or not to use an envelope for their gas. I refuse to go inside a gas station to pay for gas. I feat that I’ll get sidetracked and buy a coffee or gum. Plus, I hate leaving the kids in the car (and when they were younger I would’ve NEVER been able to leave them in the car). But my hubby likes to go inside and hand over the cash so that he doesn’t accidentally overspend in that area.
It’s all based on the needs of your family.
Don’t Cheat, Even When You’re Tempted
I am very guilty of borrowing money from other envelopes.
When we want to go out to eat and we are out of money in the eating out envelope, I have a habit of finding new money.
Resist the temptation to shuffle cash throughout your envelopes or borrow money from another category. After all, you’re doing this for a reason.
If you use up all your eating out money, resist the temptation to dive into your clothing money.
The purpose of these envelopes is to help with your spending and teach you how to be responsible with your money.
While it is crucial to have an emergency fund, you might not be there yet.
Even worse, you have come across a catastrophic emergency that your emergency fund couldn’t cover.
If you have a crisis occur in the middle of the month, or towards the end when you don’t have any money left in a category, talk with your spouse and call an emergency budget meeting.
Figure out first if there is truly an emergency at hand, and see if you can make it work. If not, then it is okay to adjust the budget.
Things that are not emergencies:
• Wanting pizza but there’s none in the freezer so you have to order it
• PMS Chocolate
• Running out of something (unless it’s crucial like toilet paper)
• Being bored (try these FREE things to keep you busy)
Keep in mind that these envelopes are your defense when it comes to overspending. These envelopes are there to help you better manage your money and take control of your spending. If you don’t take them seriously, you can’t expect them to work.
YOUR TURN: Can you be disciplined enough to use the envelope system? What categories would you choose for your envelopes? Let me know in the comments below!
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