My #1 tip for anyone wanting to take control of their spending is to use cash but you must use cash wisely. If you are ready to take this step, learning how to start a cash envelope budget may be just what you need.
Taking control of your finances isn’t a luxury, it’s a necessity for many of us. Holding yourself accountable for all of your purchases is a learned behavior that isn’t easy. Successfully managing your money takes discipline but it is doable.
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So many people live in the never-ending cycle of constant overdrafts and not being able to make ends meet. Having a negative balance in your checking account with days to go before you are paid is very stressful.
This situation sets you up for failure month after month because you are giving away money instead of giving it a purpose in your budget.
Is this a story you could write?
I could write this story because this was my life! I was robbing Peter to pay Paul and having to deal with money coming out of my account to cover overdrafts before I could even pay bills. I was unhappy and felt out-of-control because I didn’t know where to start.
Learning how to use the cash envelope budget system helped me to understand my spending and control my finances. When you are using cash, you quickly understand that when it’s gone…it’s gone. You can’t overdraft cash, you just don’t have enough to cover what you want.
Pairing the cash envelope budget system with the half payment budget method made all of the difference in the world for me. Not only did I understand how to make things work — I was taking the proper action to avoid those stressful money situations.
You see, I’ve always known how to make a budget work.
But knowing and doing are 2 totally different things.
We all know what to do, but how do you make it work when you are stretched to your limits at times.
We all have the basic knowledge that we must have more money coming in than going out. Such a simple concept. Why is it so hard to make it work?
Enter the Cash Envelope Budget System
I could go on and on about all of my money failures through the years, but you aren’t here for that. You’re here to learn how to start a cash envelope budget and make it work for you.
So let’s get started.
The cash envelope budget system is actually very simple and can be summarized easily by saying, “Just pay cash for everything.” But we have already covered that knowing and doing are 2 different things.
But the cash envelope budget system really is simple when you start putting it into practice.
Seriously!! If I can make this system work, so can you. And as I said, if you use this with my half payment budget method — WHOA! You will find that you actually have money left over!
How completely free will you feel when you have your spending under control? Think about that for a moment. No more calling your spouse and saying “Don’t touch the bank account until we are paid.”
Starting and sticking with a cash envelope budget system has been the game-changer in my life and it can be the same for you!
Cash Envelope Budget System
This is not a new concept. In fact, my grandparents used this method. In the cupboard my grandmother had a set of envelopes that she would take cash from to go to the store, to pay a bill, or to give me money for a treat. But somewhere in our ever-changing world, we’ve forgotten these tried and true methods. Sometimes we shouldn’t fix what ain’t broke.
My key to financial freedom was simple — USE CASH! Yeah, cash! Do you remember what that is? Stop pulling out the plastic stuff and swiping. Just use cash PERIOD!
It is statistically proven that when you use cash, you spend less. When you know you have $50 in your wallet and that’s all you have, not what you might have in the bank if this “didn’t hit” mindset. You ONLY have $50 cash to spend. Guess what? Then you will spend $50 or under. Go figure! Wow! Isn’t that simple?
Using the cash envelope budget system is exactly that simple.
Now don’t give me the line, “When I have cash, I just spend it.” Really? Do you really? Do you spend cash all willy nilly and then have overdrafts or do you swipe that card and find yourself in a bind?
When I see my cash pile (not really a pile) depleting, I take stock in what is there. I think about each purchase and I make money last. I control my spending and that’s what we all need isn’t it? Trust me with this. Switching to cash will make you think about every purchase.
What is the Cash Envelope Budget System
Well, the cash envelope system is a simple way to divide your spending by categories or small budgets. Each category has a designated envelope to “deposit” your allocated amount of cash. The envelopes help to keep your money and spending organized. All spending is done with cash.
Once the cash in the envelope is gone, it’s gone. No more overspending.
If you want even more control of your finances, you might be interested in this book by Dave Ramsey!
It All Starts With a Budget
Oh! I know I said the dreaded B word! B – ughhhhhh – get!
Knowing what’s coming and what needs to go out is how it all starts. Without having the basics down, your cash envelope system will be doomed to fail and we don’t want that. I want you to crush this and smash that door into financial freedom.
Let’s get started with the budgeting steps.
Track Your Spending
Grab that super cute tracking expenses printable I have made just for you…roll up your sleeves…pour a glass of vino…and let’s get started.
If you don’t know where your money is going, you’ll never know how much cash you need for your envelopes.
It’s best you do this for at least an entire month before you start the cash envelope budget system. Hey! Rome wasn’t built in a day. You can’t expect financial freedom to happen overnight. It takes a little work on your part, but the feeling you get when it all comes together is worth it.
Now Break it Down into Categories
Where do you spend your money? Groceries, dining out, beauty/personal care, clothing, medications, pet care, entertainment…look at your tracking expenses sheet and see what your categories are.
Use This to Decide Your Monthly Categories
If you are looking for super cute envelopes to use, I have a cash envelope HERE. Each cash envelope template is designed to keep your spending on track. Cash envelopes for budgeting are essential for the cash envelope budget system to work.
How Much Cash Do I Need
Now that you have your categories and your cash envelopes for budgeting set, it’s time to determine the amount of cash needed for each. Look back at your tracking expenses worksheet and see the amounts you spent previously.
Were these amounts within your comfortable spending limits? Did you have a nice cushion left over at the end of the month or did you overspend? Looking at your spending do you feel you are overspending in some areas and can better use some of these spent funds to help in other areas?
All of these are questions you should ask yourself when you are determining your spending limits in each category. It is important that you remember the simple rule of budgeting — more money should come in than go out.
Now, remember, this is going to take some trial and error. But with a little tweaking here and there, you will find a manageable solution in using the cash envelope system.
When Do I Add Cash to My Envelopes
After you pay your monthly fixed expenses, make a cash withdrawal from the bank to fill your envelopes.
Your fixed expenses will generally get paid out of your bank account with your debit card or set plan.
Do not use a credit card to pay your fixed expenses. If you have a problem saving the amount monthly for your fixed expenses, a separate cash envelope to pull the amount out of the bank until needed could prove helpful.
What do I mean? if you need $550 from each paycheck you receive monthly to pay your rent and seem to fall short because you fail to plan properly or overuse your funds. Make an envelope for rent/mortgage, which is a fixed expense, and temporarily “pull” the cash from your account until the next pay period. Once you have the full amount, deposit this and pay your rent/mortgage immediately. Doing this will ensure you won’t use the funds you are trying to save.
Tips for Using the Cash Envelope Budget System
Tracking Your Deposits and Withdrawals is Key
Not only should you see your cash, but you should also be very aware of your amount of cash in each envelope. If you are using my cash envelopes for budgeting, I have a handy chart on the outside of the envelope to make this easy for you.
Don’t Short Yourself
Make sure to keep your change in your envelope. Remember, once your cash is gone you have nothing more to spend that month. The handy chart I have created on my cash envelope template makes it very easy to keep track of all of your funds — including your change.
Don’t Carry All of Your Envelopes
Carrying all of your cash can be very tempting if you have a hard time controlling your spending. I personally have a miscellaneous cash envelope and carry only this one unless I am in the need of another cash envelope for a specific purpose.
This also helps curb the impulse spending urges.
Break it all Down or Keep it Large
I find it hard to break a larger bill on a purchase under $5. Having larger bills makes me think more before purchasing. Find what works best for you and go with that.
Well, rest assured that shopping online is still possible. You just need to handle it a little differently.
One way to shop online is to leave some of the money you would put in your categories in your bank account. If you know you generally spend $100 online monthly, leave that in your account. But you MUST track your spending just like your cash envelope system. I’ve made this easy for you with my cashless envelope system printable.
Using this cashless envelope system printable allows you to still monitor your spending and keep your budget in check.
Another option is to withdraw your cash as normal. When you are ready to make an online purchase, re-deposit the amount needed into your account and then complete your purchase. This will still hold you accountable for your cash envelope budget.
How will the Cash Envelope Budget Help
This system holds you accountable for your spending. Tracking what is going out down to the penny, helps make you aware of your spending habits.
When you hold yourself accountable, you are taking control. You think about every purchase before it’s made and weigh out the necessity before you spend the money. You also have a constant visual to remind you, not an imaginary endless amount you can’t see in the bank.
The cash envelope budget is about learning self-control. It’s not about the cash — that’s just a visual aid.
In no time, this system will become your norm and you will see a difference in your spending.