When my son was taking a money management class in school, he constantly gave me tips and pointers to money management that he had learned about from his teacher! One of those tips was the cash envelope system. I hadn’t really heard of that system of money management before, and I wasn’t sure I should be taking financial advice from a kid! But when I looked into it more it made perfect sense: I was over-spending and not sticking to a budget on things, and that was really hurting my ability to save and pay off debt, and this money management system could really help our family.
The cash envelope system of budgeting and spending will really make you watch what you are spending and will make you stick to a budget more effectively. All you need to do is come up with a management plan for your envelopes, and stick to it!
How to start the cash envelope system
Start by compiling a list of all your monthly/weekly expenses. For instance, you are going to always buy groceries every week, and have other expenses such as pet food, baby items, gas for your car, money for socializing/eating out, etc. You will also have utilities expenses for your electricity, gas etc, and other expenses such as loan payments, mortgage payments etc. The cash envelope system will not work with all your monthly/weekly expenses: you will have to pay your utility expenses for instance online every month or write a check, and you can’t just show up with your mortgage payment in cash somewhere!, but the cash envelope system can be used really effectively for expenses such as groceries, eating out, lunches, pet supplies, baby food and diapers, toiletries, etc. In fact pretty much anything that you will easily overspend on, or not stick to a budget on.
When you have your initial list of your weekly and monthly expenses go through and see which ones are expenses that you can use a cash envelope system for. My weekly and monthly expenses that I use the system for are:
Dog food and treats
Toiletries – such as shampoo etc
Think about your spending habits, and what you feel that you are having trouble sticking to a budget with. I personally tend to spend way too much when I shop for toiletries – because I get lured by special offers, or other things I see when I am in the store. I will go into a store for just a bottle of shampoo and end up coming out with a nail polish for instance. I don’t stick to a budget, and I buy things sometimes that I don’t really need. But if I have a set amount of cash, that I need to stick to for a week/month/whatever, I know I can only spend that amount. If I buy that nail polish, I might have to buy a different cheaper shampoo for instance, because I will have gone over my set amount. It really helps curb impulse buys.
Create a cash envelope management system
Once you decide to control your spending through the cash management system you will need to effectively design and manage your system, so that it works for you. The first thing you need to do is organize how you are going to store your cash. This can be done in just a simple paper envelope, marked with what the cash is allocated for, or you can use various wallets and files for this (see the section below on ideas for various envelopes and other options that you can use.)
Every week, or month, or however frequently you feel you need to coordinate this, go to the bank and draw out the money you will need. Depending on your budgeted amount, take out the notes that you need. For instance, if you decide you need $100 a week for groceries, perhaps you will have 2 $50 bills, or 10 $10 bills for that envelope. If you are budgeting something like $55 for eating out, then you will need to have perhaps 5 $10 bills and one $5 bill. You get it!
Fill up your allocated envelopes with the cash. Make sure each envelope is marked with what the cash is ear-marked for – Groceries, allowance, dog, cat, eating out, lunches – whatever it is you are using the cash envelope system for. You can also keep a little running tally on the back of the envelope as to what you are spending each time you spend money from that envelope.
Use the money as you need it. Once the envelope runs out – too bad! You will need to wait for the next time you have a full envelope. If you have money left in the envelope at the end of the time period (lucky you!) either put it towards the next week/month, or put it into savings.
Here are some ideas for things you can use to manage your cash envelope system (these are Amazon Affiliates links):
The SpendVelope system is a pack of 12 heavier stock envelopes to use for your envelope budgeting. The envelopes come in assorted colors, which will help you differentiate between your spending categories – 5 bright colors, 5 pastel colors, and 2 white. Each envelope has an inside register that you can use to track your expenses.
This is a pack of 8 very sturdy vinyl envelopes, labels and transaction registers.
This is a set of 8 reusable colored envelopes. Stickers are included for various categories to differentiate the envelopes.
This is s set of 5 magnetic envelopes in 5 colors. They are customizable with write-on labels.
These clear envelopes have colored zippers to differentiate between categories.
This clutch wallet keeps everything together to hand when you are out shopping. It comes with 5 magnetic cash envelopes. You can also keep your cards, phone and checkbook together in this wallet.
Tea Rose Cash Envelope System Wallet
This is a handmade wallet with a pretty floral design with 6 sturdy category dividers to organize your cash conveniently.
You could also use accordian files or other pouches or files that you feel serve you well. It is much harder for a man to coordinate this system I have to say. As women we naturally have handbags and purses that we can fit envelopes inside!
I am sure that going forward you will find and devise the system that works best for you.
Give the system a try – and please let me know how it goes for you!
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