How to Implement a Cash Envelope System

 

The only hard thing about implementing a cash envelope system is making sure you stick to it. With the right mindset and determination to save money, this type of system can be very lucrative. To keep you from overspending your "allowance" you can set a daily limit that you are allowed to spend. In case of a true emergency, I have a $50.00 folded into a square and tucked away deep in my pocketbook, so deep in fact, I am sure it would take me a good ten minutes to find it. That aside, I have my normal, usable cash directly where I can find it, in case I need something throughout my day. Need is the key word here. If I do not need something, that money stays right where it is and is considered a savings later. Just by keeping track of mindless spending and being more frugal, which means more thoughtful about the use of money or resources, one can build up a savings in no time.
Start saving money through a Cash Envelope System – its quick and easy!

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.

It’s important to budget correctly for categories such as groceries.

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
  • Childcare
  • Rent
  • Groceries (mmm food)
  • Club Fees
  • Taxes
  • Utilities
  • Savings

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.

The best cash envelope system available right here

Make or buy the cash envelopes.

Budgeting with a cash envelope system is great for many reasons. It keeps you from using plastic and putting yourself more into debt. It teaches you to be more thoughtful about how you spend the cash you have. It allows you to know with a glance that your expenses are covered and just how much you have saved at any given point. This is a fantastic idea for someone at the beginning of a frugal lifestyle journey and you might find that it helps you so much and gives you so much control over your available cash that you keep doing this for life. Many people are using the cash envelope system today - some may use it like we said and some may have other ways of doing it. However you decide to use your envelopes - use them. Using them is the key to saving.
You will have your Piggie Bank full in no time by using budget 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

A cash envelope budget can be so easy. Most people figure out how much cash they can have for an allowance they have to get them from paycheck to paycheck. I go a step further with this and set a daily limit and have my allowance split up into envelopes that are marked with the days of the week. If I do not spend my daily allowance, I leave it in the envelope for that particular day in the following week. In that way, I have some idea of how much I am able to put into my savings envelope just from this source on a daily basis. When I add money into my "savings" envelope at the end of the week, I make sure to note where that money came from. If I have different sources of money going in, each source gets its own deposit line. In this way, you can track exactly where your money came from and you will know where your best sources for saving come from. If you save money during your weekly trip to the store, any extra should be deposited into savings with a deposit note showing it was from the weekly grocery budget.
Cash Envelope Budgeting Made Easy

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?