So you’ve seen budgeters all over carrying around envelopes full of cash. Questions might be flooding your mind about the cash envelope system…
What’s this all about?
Are they crazy?
Did they just rob a bank?
Or is this something that I should be doing?
And seriously…does the cash envelope system actually work?
These are all LEGIT questions that I’ve once asked too! The cash envelope system is a great way to spend money that actually helps you stay on budget this time. And I’ve come up with a list of 8 things everyone and their mom should know about the cash envelope system (whether or not you use it).
1. How cash envelopes actually work.
Before you develop an opinion on cash envelopes, it’s important to know exactly how cash envelopes work! Basically, instead of using your debit card for certain purchases, you choose to use cash instead. This means that you have to intentionally decide how much money you want to spend in certain categories of your budget. Then, head to the bank and withdraw cash from your checking account for those categories.
Seems like too much work? I promise it’s not! Plus, cash envelopes help people develop positive habits such as living within their means! It’s a great way to help you stick to your budget and not swipe the debit card too many times!
2. You don’t have to pull out ALL your money in cash.
When people first hear about the cash envelope system, they assume that you have to withdraw all your money in cash. And then they ask “Well how do you pay your internet bill with cash?” This is not how the cash envelope system works. You only take cash out for the categories in your budget that you want to use cash for. This tends to include food, such as restaurants and groceries. Sometimes it also includes entertainment as well as money for clothing.
3. Where to keep the coins!
I get this question a lot when I talk about using the cash envelope system. People always want to know where I put all my change. In fact, I think that the idea of carrying around envelopes full of change makes people want to quit the cash envelope system. But listen up! I have 3 easy solutions for you to choose from!
Option 1: Take all the change you collect and add it to a jar at home. When the jar fills up, spend it on something fun! You’ll be surprised just how much money you can collect in a small jar. Last time I cashed in my jar of change, I had over $80. That money went straight to our vacation fund!
Option 2: Keep the change in your purse or wallet. Every time you’re using cash, use your coins to try and make exact change. This way, you’re not always getting back a ton of coins. When your wallet starts to fill up, transfer any extra coins to your coin jar!
Option 3: Keep the change in your car. Find a safe spot where you can collect coins. Then, when you’re in the mood for a caffeine run, use the change to pay for your drink! My husband does this and I LOVE that he’s not using our debit card to grab a soda here and there.
4. Cash envelopes help you stop overspending.
Cash envelopes are a proven method that helps people put a stop to overspending and live within their means! I can speak from personal experience that even after using cash envelopes for a few months, I spent way less than I had before! Being able to use cash gives people a tangible way to see how much money they have left. No need to add up how much you’ve spent on groceries after 3 trips. Just count how much you have left in your envelope!
Any time I go to the grocery store, I know exactly how much I have in my envelope to spend. I can separate that over the number of weeks I have left until I refill my envelope. When the cash envelope method is followed correctly, people learn how to live within their budget.
5. Get out the right denominations.
If you’re planning to pull $300 out for two or three weeks worth of groceries, you probably don’t want the teller giving you 30 ten dollar bills, am I right? And if you’re planning to pull out $100 for restaurants, chances are you don’t want a one hundred dollar bill. I personally know from experience that the good people at Chick-fil-a don’t usually appreciate being given a $100 bill. Especially when they don’t have enough change! That’s why it’s so important to ask for specific denominations.
Plus, asking for specific denominations helps you keep your cash envelopes separate. For instance, let’s say you need to pull out $400 for food. You want to spend $150 on restaurants and $250 on groceries. What do you do if the teller gives you 4 one hundred dollar bills? To avoid this problem, make it easy on the teller and on you!
When you’re deciding how much money you want to get out in cash, create a simple tally sheet. Decide how many denominations you’ll need to complete your cash envelopes. Then, when you go to withdraw cash, give your tally sheet directly to the teller. They’ll know what to do!
6. Fun money is incredibly important.
I learned the hard way how important it is to have a category in your budget for something fun. Just because you’re living on a budget or using the cash envelope system does NOT mean that you aren’t allowed to enjoy a night out. It doesn’t mean that you can’t get a pedicure or make a Target run. If you’re married, then plan for each person to have a fun money envelope. This way each partner can spend on what they want. You might be surprised to learn that you might save your money up for a larger purchase down the road! Just be sure to stick to the budget if you want to see results!
7. You don’t need to keep all the cash with you at all times.
Just because you’re using the cash envelope method to help you stay on track with your budget doesn’t mean that you keep ALL of your cash with you at all times! That just isn’t smart. Or safe. Instead, only keep the cash with you that you need for that day. For instance, if you’re planning to pick up dinner after work, just grab the restaurants envelope. You could even grab some money out of the envelope and keep it in your wallet. Just be sure to put any leftover money back in the envelope at the end of the day. Find a safe (and hidden) place to keep the rest of your cash at home.
8. You should know if it works for you.
Here’s the thing. We can sit here and chat all day long about how cash envelopes work. I can tell you story after story about how using cash envelopes helped our family live on a budget and ultimately pay off a ton of debt. But you won’t know if it works for you and your family until you give it a shot.
Let’s look at it this way: even if you’re still on the fence about using cash envelopes, it doesn’t hurt to try it out. So instead of just assuming that this will or will not work for you, actually use cash envelopes for 2-3 months. Choose one or two categories in your budget where you tend to overspend (for us that’s food!) and commit to using cash in just those categories. If you hate it after 3 months, then no hard feelings. But you might be surprised to learn that cash envelopes actually help you spend less!