Since using cash envelopes instead of plastic (debit cards and credit cards) the way I see my money has changed drastically. When I say see, I mean literally.
*Update: Since using the cash envelope system I have been consistently coming in under budget by over $70 every two weeks!
Many of us check our bank accounts, notice that there’s money available, swipe, and the rest is history. Then, when we check our accounts again it looks like a bomb went off in there!
We, including myself, rely so heavily on technology to “do its thing.” So much so that we forget to do our part, which is to manage our spending.
I know, “No one carries cash anymore!”, but these little envelopes or clips have hidden magical powers or something.
If you find yourself struggling to stick with your budget, check out this post on how to use the cash envelope system and download your free envelope printables here!
What is the cash envelope system?
Simply put, the cash envelope system is when you use cash instead of doing everything electronically. You place the cash you assigned to each budget category in an envelope (or clips), and pay for your related transactions with those funds.
This means that if you budget $200 a month for gas, and you’re paid bi-weekly, you will place $100 in your gas envelope from each paycheck.
This makes it extremely easy to keep track of how well you’re staying on budget because you just take a look inside your envelope and judge by the available funds.
If you don’t have a budget yet, I wrote a post that’s perfect for budgeting beginners so I recommend checking it out here!
How will it help me?
It reduces spending
Sure, it’s easy to turn a blind eye when you swipe, but handing over cash takes your stinginess to a whole new level. It burns to watch your $20 bill turn into nothing but a few ones and some change.
Since using cash, I’ve noticed myself looking at the price tag of something (which wasn’t on my list BTW) and slowly pushing my cart away. Before, I would’ve shrugged and tossed it in. It’s like a guilty pleasure to peek inside your envelope and see money, and you’ll put in a lot more effort to keep it there.
It holds you accountable
As mentioned above, handing over cash hurts and when something hurts we don’t want to keep doing it. Using the cash envelope system allows you to physically see your money and the effects of your spending habits.
The amount you allocate to each category is the amount you have to spend on those specific expenses. When the money is gone it’s gone. There’s no dipping into another envelope that looks fuller.
If you’re coming in over budget then it’s time to give yourself some tough love or look over your expenses again to make sure you’re setting enough aside.
It gives you an opportunity to save more money/pay off debt
Now that your grip is a little bit tighter on your dollar bills, when you get to the end of each pay period (whether weekly, bi-weekly, or monthly) there may be cash remaining. This is the perfect opportunity to deposit that money into your savings account or throw it towards a debt balance.
You can also roll over the money to the next period in order to have a larger grocery budget, etc.
Money posts to check out next!
You can treat yo’ self
Ahh, yes…treat yo’ self! The menacing phrase we keep telling ourselves in order to downplay our purchases. This time, however, you can do this without any guilt!
If you came in under budget, use some of the unused money to take a trip to Starbucks or buy the new eyeshadow palette that’s been staring at you from the store window. It’s ok to celebrate a win every now and again as long as it’s in moderation.
I love applying the extra money I come under budget to my sinking funds. If you want to learn more about making guilt-free purchases then check out this post here!
Cons of the cash envelope system
With every good thing comes some bad. While the cash envelope system is great for reducing your spending and making sure you stay on budget, it does have some negatives.
Losing your envelopes. If you lose your envelopes then the money inside is gone. There’s no calling up your bank and getting a new card.
Also, if you leave your envelopes somewhere and someone decides to swipe them then you don’t have the luxury of canceling your card and filing a dispute.
Depending on how much you budget for each category, you might be required to carry a lot of cash. Instead of turning every budget category into an envelope, try only carrying cash for the expenses you tend to overspend on like food and entertainment.
Difficulty separating transactions. There will come a time when you’re at the store with items of separate budget categories all in one cart. For example, let’s say you have groceries, some tissue, and a new shirt. Depending on how you divided your budget that may be three separate envelopes.
So, what do you do? Make the cashier run three separate transactions and feel the fury of those behind you sting the back of your neck? Well, you might have to.
I actually experienced this situation myself. Instead of pissing off everyone around me I used the funds from my grocery envelope to cover the cost of my pack of tissue. Once I got to the car, I found the price on my receipt and shuffled the money around between the two envelopes so they both had the correct remaining balance. Crisis averted.
Goodbye card perks. Yep, no more cashback rewards, special discounts, or any other perks that come with your debit/credit cards. I love getting $10 to $20 back in rewards just as much as the next person, but I was also overspending so this was an easy sacrifice to make.
Good thing is, with apps like Ibotta you can still get cashback on your purchases even without using a card. Before you go to the grocery or drug store, browse through the active deals and take a picture of your receipt to redeem your offers. Yep, that easy.
Don’t worry, it’s free to use.
How to use this with your budget
Using the cash envelope system with your current budget is extremely simple. Pick out the categories you find yourself struggling with the most then calculate how much you will need to contribute and how often. These tend to be food, gas, and entertainment.
Once you have which categories you will use cash for, print out your envelopes and withdraw the exact amount you will need for each.
Going back to the gas example from earlier, if you budget $200 a month for this expense and get paid bi-weekly then you will need to withdraw $100. Place the money inside the envelope labeled ‘Gas’.
I don’t recommend using envelopes for expenses like rent and utilities. God forbid you lose them or they get stolen. Plus, it’s a hassle driving around town to pay for them in-person.
For expenses such as these, I recommend using auto-pay so the bills are deducted from your account automatically. I have an account set up specifically for my bills, and since everything is paid for me I don’t ever have to do anything but check my balance from time to time.
It’s a huge life-saver so definitely check out how I manage it here.
Since using the cash envelope system, I’ve been keeping a closer eye on my balances and even find myself saying no to my weakness (fast food). It’s honestly amazing how just physically seeing your cash can be the extra kick in the butt you need to finally stick to your budget. What are your thoughts on the cash envelope system?!