This year, we’ll be living on the cash envelope system!
When my hubby and I sat down at the end of last year to write up our budget, we realized we were “coasting”.
While our bills were getting paid, and money was going into savings, there was room to do more!
This was probably the best discovery for us in awhile…room in our budget that could help us achieve our goals sooner! What?!
Taking a step back and realizing how close we could be to realizing our dreams (buying a new house, my hubby learning to fly, taking a family trip, etc), our motivation kicked into overdrive!
We discussed how to go about it, and decided that the cash envelope system would get us there fastest!
What Is The Cash Envelope System?
Most popularly advocated by personal finance guru Dave Ramsey (LOVE that man!), the cash envelope system is a way to control spending by physically removing the money from your regular cash flow, treating it as “already spoken for”, even if the bill isn’t due for 2 more weeks.
How Does The Cash Envelope System Work?
Each envelope in your collection is labelled with a specific destination (ie phone, groceries, gas, credit card, etc.), and you place a predetermined amount of money (we’ll talk about that soon!) in each one.
By physically placing money in the envelopes to pay for bills and other expenses, you are removing it from the equation when working with your bank account (or paying with debit)!
Not only do you remove convenience of spending, but when the numbers are not in your account, it’s almost an “out of sight, out of mind” situation!
Likewise, having the money pre-planned and separated into envelopes shows you exactly what you are allotted for each expense, no more, no less. So, if you’ve used your grocery money for the week and the envelope is empty, you’re out of money until the next time you pay into it!
The #1 Reason The Cash Envelope System Works…
From the time you are young, you will get excited by the sight of money…sad, but true.
People develop a certain attachment to these pieces of paper in a deeper way than seeing it as food, or a roof over their heads.
They see hope, security, and promise of good things to come. So naturally…they want to hold onto it!
Seeing your hard earned money in envelopes right before your eyes (not just as numbers in a bank account) not only provides you with an “at ease” feeling knowing that bills are under control, but deters you from using it as freely!
Think about your own shopping habits, are you more likely to make an impulse purchase if you are using a card, or physically have to hand over the cash?
How To Maximize On The Cash Envelope System…
- Set Your Budget Conservatively–
If you want to see results fast, be realistic, but challenge yourself with each amount.
For example, you may usually spend $120 a week on groceries, but I bet if you really only had $100, you’d find a way to make it work!
5 Tips For Starting A Budget
- Budget For Savings–
Make sure when you are planning your budget that you treat savings as an expense! Plan it as you would any other bill so it doesn’t get overlooked.
How To Save Money-8 Simple Ways To Grow Your Savings
- Don’t Forget YOU!–
I know after #1, you’re probably thinking this is a contradiction, but it’s a security feature! If you feel trapped by the cash envelope system, it wont stick!
Allot yourself a little something to do with as you please so you have a little freedom, even while tightening your belt!
My hubby and I each get $20 a week in “free money” to use for whatever we personally would like, whether it be going out for coffee once in awhile, or saving up for something larger (I just bought a new book with mine)!
Setting Up Your Cash Envelope System
Set up your cash envelope system using anything you have on hand that will do the task, it doesn’t necessarily need to be envelopes!
We picked up an accordian folder at the dollar store that came with the labels for the tabs (amaze!) and this is working perfectly for us. I also picked up a 40 pack of small craft supply bags (also from the dollar store) for any change that may need to go in so it’s not loose in our folder!
Simply label each section of what you are using with each of your expenses, how much you will be putting in each time you “make a deposit”, and I included the due date and frequency of each bill payment on the back for quick reference!
The frequency and amounts of your deposits are up to you and what complements both your budget, and your pay schedule! Some people find it easiest to put the money for the entire month in each envelope at the start of the month so it’s taken care of, while we deposit into ours weekly.
This works best for us since we get paid weekly on Fridays, so we just divided each monthly expense by 4, and put that amount in each week so by the end of the month we can just pay the bill (this weekly system has also been easier for groceries)!
Do you use the cash envelope system? What system works best for you?
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