You have been working really hard to create a fantastic budget and use that budget (remember my FREE Excel workbook!). But you’re not getting the result you want, you continue to overspend. Now what? It’s time for the cash envelope system…
When beginning to budget it can be hard to maintain and to change your way of thinking. Think of it like going to the gym, it’s hard to go after months or years of not going. But after a couple of weeks or months of consistently going, it gets easier. The hardest part during that time is getting yourself there… But you always feel better after.
Starting to budget is just like that. The hardest part is doing it! You need something to hold you accountable to that budget. And that’s where the cash envelope system comes into play.
HOW IT WORKS:
FIRST, the system has been around for years and years, what else did people do before credit cards? So IT WORKS! Using this system makes things tangible; you use cold hard cash to control your spending. No credit cards to fall on, so when the moneys gone you stop spending.
If you’re thinking NO credit cards, how will I live? Then you need this system, you need to change or your budget will never work.
Let me give you an example. Let’s say you’re at the store. You have your list but as you’re walking through you see some more items that would be nice to have but you don’t need them. If you’re using a credit card, you would probably buy them because you can pay for it later. But with cash, you only have “X” amount of money and those items are not in the budget, so you do not buy those extra items. Saving your money for the things you need.
Side Note: There are times when things that you normally purchase are on sale, if this happens adjust your budget to make things work.
The reason of using cash is ONLY using the money you have right then and NOT paying for it later. This is why this system works!
HOW TO CREATE A CASH ENVELOPE SYSTEM:
The very first thing you need is a budget. And from this budget you will have your list of expenses. Now time to decide a couple of things.
There are some that say only use the cash system, for everything. And if that’s what you need to do, do it! But here is what I suggest.
- Bills – there are those expenses that are due the same day every month and for the most part they are fixed. These are things like you cell phone, internet, mortgage/rent, car payment, student loans and etc… And normally you can have these on autopay, I would suggest doing this. I also have my utilities on autopay that way I don’t forget to pay them.
- So these will be coming from your checking account or credit card every month but you know the number, why take out the cash when you don’t need too?
- Pick an expense that you have trouble with – you should have a pretty good idea what expenses you struggle with staying on budget. For me it’s my food, home project, and personal expenses. So these are the only expenses I take cash out on.
- Everything else I use my budget workbook, in the plan ahead tab, to keep track of it in my savings account. You will have to figure out those expenses for yourself but your FOOD EXPENSE must be one of those. Did you hear me? Take cash out every month for any food expense (eating out).
Putting cash in the envelope
You will need to decide when you want to fill your envelope with cash every week, every payday, or every month? I do it every month but let’s give you an example of every payday.
You get pay twice every month and let’s say you plan on $500 for food every month. So after you get paid, you would take out $250 (500/2) in cash for that paycheck. This amount would be put into an envelope labeled “Food”. And the ONLY thing you can spend that cash on is food items. This is where you need to have discipline. If you go to the store and forget the cash, you drive back home and get it. And if you don’t have enough cash to pay for the items, you put something back.
There is NO cheating by using a card or telling yourself you will do better next time. You ONLY use the cash you have!
Now you could use a plain white envelope with a label of the expense. But to make things easier, make your envelopes color coded. It’s much easier and faster to pull out that one green envelope then all of them.
WHAT IF I SPEND ALL THE CASH OR HAVE EXTRA?
If you spend all the cash you are done! Don’t spend any more. There is one exception that I use to this rule and that is when stock items are on sale. There have been times when a case lot or meat sale, let’s say chicken. But if I stocked up on that chicken, I would not have cash for next week’s food. This is the only time I use a card… And the way it works is that I subtract this amount or half from the next month’s food expense. For example, the chicken will cost me $50. I would put the whole amount onto next month (I would only have $450 to take out instead of $500).
Now this rule is only for things you use often that are a really good deal. If it’s not, don’t buy it.
Side Note: If you want to start a stock pile of food, buy an extra item or two every month. Then in a couple of months you will have a stock pile!
If you have extra, save it for next month, pay off some debt, or maybe adjust your budget a little bit. You decide what works for you!
I wish life was easy and someone could tell us all what to spend on each expense but guess what? Everyone’s circumstances are different so you need to figure this out. I can tell you to remember the reason why you’re doing all this. And keep that reason in your mind all the time to help you change your spending habits.
HOW TO MAKE SURE YOU SUCCEED
I am not going to lie; budgeting can be hard at first. And you’re the only one to make sure you stick to that budget. It’s OK to adjust your budget if something is not working; it will probably take you a couple of months to figure out your sweet spot for each expense.
Now you’re on this adventure to reach some goal, so remember it when you want to use that card. Maybe get a little crazy and cut your expenses more.
Realize quickly what your weaknesses are and change them immediately. So if you find that you’re struggling to stick to a cash budget. Leave all your cards at home. We got to a point in our life that we cut up all our credit cards to stop using them. Then after we got a handle on that, we got new ones.
Or maybe you struggle with using cash from other expenses. Don’t carry around all the envelopes and take only the cash you need. I do this so that I don’t overspend on that one grocery trip. Plus I only go to the store once a week. This is only possible because I meal plan.
One of the beauties of a budget is that it is personable, what works for me will not work completely for you. So do what you can and try to improve.
This system is ideal for anyone trying to stay in a budget. It allows you to see how much you have spent but also how much you have left in your budget and it helps you control your spending. This system has worked for thousands of years, so why not now? Why not for you?
Do you have any tips? Or questions?