There you are, sitting in the drive thru at Starbucks. You already placed your order and they are making your venti caramel Frappuccino. You start searching through your wallet, gathering as many coins as possible. Unfortunately, you are a dollar and three cents short. It strikes you! You don’t have enough cash to pay for your delicious drink. That venti caramel Frappuccino… In guilt, you pull out your credit card and pay for the drink with plastic. You just added more debt into your life. All this stress could have been avoided by using cash. Specifically, all of this could’ve been avoided by implementing a cash envelope system.
Implementing a Cash Envelope System
Set the budget.
So you’ve decided that it’s time to have a money system in place. With a budget that is properly adjusted, you’re months will seem so much easier. Your days will seem much less stressful. You know how much money you have and there is no way to spend more than necessary.
Incomes vary from person-to-person. It is up to you to figure out an amount that you are comfortable spending each month. This amount will then be divided into multiple categories.
Pick the cash categories.
The different cash categories are arguably the most important part of the cash envelope system. The categories are the framework of the system. To pick your categories, sit down with a pen and paper and record a list of all the expenses you have throughout the month. Start thinking! When I was first creating my system, my categories were as follows:
- Automobile costs
- Groceries (mmm food)
- Club Fees
In the same way that income varies, the categories will be different depending on who you are and what you do. Do you really like Starbucks? You can create a separate envelope dedicated to that.
Keep in mind that mortgage payments, rent, or just about anything that you’re only going to be paying once do not need to have envelopes.
Make or buy the cash envelopes.
The envelopes themselves are also super important. You’ll want one envelope for each category that you come up with. I’ve seen many people create their own envelopes out of office paper. Of course, you can just go online and buy the cash envelopes.
You’ll be stuck with these envelopes for a long time. You want them pretty, you want them perfect. Most of all, you want them to be functional. With making your own envelope, you are able to make it just the way you want it to be.
You can even do things like placing an index card on the front of the envelope and record all the transactions in and out of the envelope. At the beginning of the month you might put in $300, so you can record that as a transaction going in. As you spend, you record the money leaving the envelope. This way, you don’t need to constantly count how much money you have left!
Spend and adjust.
Your first month with your awesome envelopes will not be perfect. I know that mine wasn’t and nor were the experiences I’ve heard from family and friends. It takes time to get used to having limits. I highly recommend that you keep a notebook by your envelopes. You can use this as a personal journal; record the flaws and the positives of the system. What do you like most about it? What would you change?
If you felt that a certain envelope needed a bit of extra money, you should write that down. At the start of the next month, you can easily change around the cash that each envelope gets.
It is super important to enjoy your money. If a particular category feels like too much of a restriction, nothing is stopping from changing just how big that restriction is.
As the months pass, you will gradually adjust certain aspects of the system, making it your very own. One system might not work for another person, so having an individualize envelope system is crucial to making it work for you.
Benefits of Using Cash Envelopes
Spend Less Money
This is probably one of the major benefits of the cash envelope system. It is simply impossible to go over budget and it controls your mindless spending. With the system you are able to truly understand how much money you have. You realize how much money that you waste.
You don’t have to spend all the money in your envelope. In fact, you really shouldn’t. At the end of the month, you can take the remaining cash and put it into savings, investments, or grow your emergency fund.
Simplest Budgeting System
The reason why the whole cash envelope thing is so popular is because of its simplicity. Anyone can understand the basic principles of the system. There are no advanced spreadsheets; your budget will not be adjusting throughout the month.
What you have is a handful of envelopes. It’s a very tactile concept. You spend an hour setting up your wallets, and it’s good for the rest of the month. It’s all about setting and forgetting.
Impossible to Go Over Budget
As I said previously, it is impossible to go over budget. Everyone will have different meanings of “going over budget”, but for me I am able to stick to how much I put into the wallet. Of course, it is very possible to add some more cash ‘magically’ to your wallet, but cheating is no fun. You are only cheating yourself.
Controls your Mindless Spending
When you look at your money inside the wallet, you realize that you do not have as much as you originally thought. Having a credit card in your hand and having a $20 bill in your hand comes with two entirely different mentalities. With the credit card you are just spending an invisible number, with cash you can see and you actually physically spend the money.
Envelope Budgeting in Conclusion
It’s a great idea and you will not regret doing it. If you follow advice given by Budget Pronto and others around the web, you should have a fairly solid system set up in a few days.
Critically think! Some things may work for you and not work for others. Create something that you enjoy, as life is meant to be enjoyed and loving.
Go ahead, start your cash envelope system. What’s holding you back?