While I’m not a financial expert, I absolutely love budgeting. In fact, telling my money what to do brings me a great deal of joy. I’ve wanted to share my budget on the blog for a while now, but I have a bit of a convoluted system. I thought the easiest way I could share some of my money managing strategies would be in separate posts on the different aspects of my budget. Thus, today I will be sharing with you how I use the Cash Envelope System for my monthly spending. I first learned of this budgeting technique through a variety of online content creators. I know that this system was popularized by a well-known debt-free guru, but I do not follow or agree with his overall budgeting method. Instead, I put my own spin on the Cash Envelope System, and I’m excited to share how I’ve used it to my advantage over the past two years.
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If you’ve never before heard of the Cash Envelope System, it is quite self-explanatory. Every month, I withdraw cash from the bank to use as my spending money. The idea behind this system is that it helps to hold you accountable for how much money you are spending. For example, if you budget $100.00 per month for groceries, you only get that $100.00, and once you run out of cash you’re done spending. As someone who used to rarely use cash and rely on debit or credit cards, I know first hand how easy it is to swipe that card without paying attention to how much I was spending. I knew the Cash Envelope System would force me to spend my money intentionally. This was especially important when I drafted a budget focused primarily on my savings goals, and less on spending.
As mentioned above, I’ve used the Cash Envelope System for my monthly spending for about two years now. I use cash for those categories where it makes sense for me to have money on-hand at all times. The categories I use for my cash envelopes are: Food, Household Expenses, Gifts and Christmas, Clothing, Charity, and Fun. I also withdraw money to pay my cell phone bill in cash every month, as I am on a family plan and pay the account holder directly. If you plan on using the Cash Envelope System, your categories do not have to match mine. Do you pay a babysitter regularly? Do you have pets for whom you are caring? Think about where you spend your money the most frequently, and pick the categories that make sense for you.
It’s not surprising that the Cash Envelope System has both avid fans and harsh criticizers. As with any type of money management, we all have to do what works best for our unique situation. That’s why I take what I like most about the Cash Envelope System, and I make it work for me. I am pretty relaxed with what can often be a strict method. For example, I do not carry around a lot of cash with me. Many critics of the Cash Envelope System will mention how dangerous it is to carry around large amounts of cash. I agree, and I typically only have a small portion of my Food budget, my Fun budget, and my Household Expenses budget in my wallet at any given time. By keeping the rest of my cash in a secure location, I not only reduce spending temptations, but I feel more secure.
If I find myself out and about without the cash from a certain envelope, I’ll just use a card and pay myself back in cash later. For instance, if I end up buying a $20.00 gift for someone on my card, I’ll take $20.00 out of my Gifts and Christmas envelope, and put that in an envelope I mark Deposit to Checking. I will either deposit that money back into my bank account at the end of the month, or use it as a credit towards next month’s withdrawal. I am able to do this because I am one month ahead on my bills, and because I keep a small buffer in my checking account. If you are new to the Cash Envelope System, be extremely careful about doing this. While it can be confusing to keep track of the cash at first, I got used to it in time.
If you are concerned about the hassle of going to the bank regularly, I highly recommend adopting an extra envelope called Next Month’s Cash. This does require you to get one month ahead on your bills, but it means you only have to go to the bank once per month. When I first adapted the Cash Envelope System, I went to the bank every two weeks when I got paid. This got old really quickly for me, so I rearranged my budget in a way that allows me to withdraw all the cash I need for the next month in one transaction. That way I don’t have to worry about running to the bank on the first of the month. Instead, I go when it is convenient.
Moreover, I do want to acknowledge that the Cash Envelope System works really well for me because I am only budgeting for myself. If you are budgeting with a partner or for a larger family, this will be more complicated. Not only will you have more cash to manage, but you may need to discuss divvying up the cash with your partner. If your budget is for more than one person, you may consider the Digital Envelope System. I recommend this blog post from Pennies To Wealth for more information.
Furthermore, when it comes to supplies for the Cash Envelope System, I suggest keeping it very simple. Many bloggers will talk about the specialty wallets they purchased, or the fancy envelopes they print out each month. Since my goal is to reduce my spending, I don’t purchase any supplies. I’ve used the same set of plain white Mead Envelopes since I started this system, and my wallet is the same faux leather one I purchased at Forever 21 in 2015. I do think it’s helpful if your wallet has a few different sections to stash cash, but please don’t feel compelled to buy anything new unless it’s truly needed.
In the end, I hope you found this blog post on how I use the Cash Envelope System helpful. I personally love shopping with physical money every month. Holding the cash in my hands truly does help me budget smarter and spend wiser. If you are someone who struggles with overspending or purchasing items you don’t need, I think giving the Cash Envelope System a try can be very beneficial. If you already use this system, I would love to know your experience with it in the comments.