Handing your credit card over to the store clerk and just charging it is quick and easy. There’s no waiting and you get that new item right then and there. THEN, the BILL arrives at home in the mail. That is when it is not fun anymore. The newness of the item we bought is gone or we’ve forgotten how good the food was at the restaurant. By getting started on the cash envelope system for certain items, the possibilities to save more increases. The envelope system is just a budgeting system where certain categories are kept in cash. There are different types of envelopes you can use for this.
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Studies have shown that when cash is used versus a credit card, we think harder about if we really need that item. It makes purchasing items more intentional instead of “just put it on this credit card” and trying to figure out where the money will come from to pay the bill when the statement comes in.
I’ll be honest, the transition between credit cards to cash will be difficult as one month you’ll be using cash for this month’s expenses AND paying the credit card bill for basically last month’s expenses.
It can be done and is very rewarding.
Using the cash envelope system has really changed the way we spend money and we’re able to save more now. I wish I would have started this earlier in life. This is also known as the Dave Ramsey budget.
If you’re struggling to have enough money to pay bills, the cash system will help you spend less. Decide what expense categories you want to use with this system. Each family is different so decide what works best for you.
Start with budgeting how much you want to spend on each category. Refer to the article on Steps to Financial Peace – Budget 101 for more details on budgeting.
You can fill up the money envelopes weekly, every other week, monthly, or any other way. It is easier to start by getting money from the bank when you get paid.
It is much easier to fill the money envelopes by knowing in addition to wanting $60 for groceries, but in what denominations.
These are a few examples of determining how you want the cash:
$20 bills: 3 = $60
$20 bills: 1 = $20
$10 bills: 4 = $40
$20 bills: 1 = $20
$10 bills: 2 = $20
$5 bills: 3 = $15
$1 bills: 5 = $5
Complete this for each of the budget categories that will have a money envelope before going to the bank.
Add Category A + Category B = Total
Budget Category A
$20 bills: 1 = $20
$10 bills: 2 = $20
$5 bills: 3 = $15
$1 bills: 5 = $5
Budget Category B
$100 bills: 1 = $100
$20 bills: 2 = $40
$10 bills: 1 = $10
$5 bills: 3 = $15
$1 bills: 0 = $0
Total of all Budget Categories with Money
$100 bills: 1 = $100 (0 + 1)
$20 bills: 3 = $60 (1 + 2)
$10 bills: 3 = $30 (2 + 1)
$5 bills: 6 = $30 (3 + 3)
$1 bills: 5 = $5 (5 + 0)
$225 (Budget Category A $60 + Budget Category B $165)
When you get the money from the bank, get the currency denomination that you figured in Total.
This allows you to easily fill the envelopes when you get home.
Categories of Expenses
This one can really impact the amount spent.
I make it a challenge or game to see if I can stay within my budget. It is very rewarding to have what you need to feed your family and have stayed within budget. If you only have $200 to spend on groceries, you’re not as tempted to put other items in your basket. If you were using a credit card, paying another $40 would not really make a big difference, because you just swipe the credit card. You wouldn’t have to deal with the consequences of overspending until the credit card statement comes in a month or days later.
With the cash envelope system, if you only have $200 cash, you must decide what you’ll put back to bring the total from $240 to $200. I tend to overestimate what I think the price will be when I keep a running total of my items before I check out. This extra tends to cover the tax. The other items that tend to be somewhat tricky is how much the fruits and vegetables are if they are sold by the pound. You can weigh them, but I usually just try to estimate them.
Ways to reduce grocery expenses
Other ways to reduce the groceries include using coupons, shopping the sales, and using ingredients you have already at home. I’ve let some things expire in my pantry before I was able to use them and had to throw them out. I feel bad when this happens as I just wasted money.
- Decide how much you can spend.
- Look at your credit card bills or receipts to see how much you’ve been spending.
- Figure out how many meals you need – if you shop weekly, then look at the 7 days and determine how many breakfasts, lunches, and dinners you need. If you’ve been invited to your parents’ house for dinner, then that is one less dinner to plan for.
- Meal plan to decide what ingredients will be needed and make your grocery list.
- At the grocery store, as you put items in your basket, check them off the list and keep a running total of the cost.
- When you’ve reached your total (and always leave some extra to cover any sales tax and things missed when calculating the total), that is all you can spend. You may need to swap some things out to get the meal items versus snacks or soda drinks.
Enjoy eating out, but do not spend more than your budget can absorb.
- This was an eye-opener for my family. When I was putting the meals on the credit card, I had no idea how quickly this added up.
- While I don’t get to eat out as much since our family decided to save money by cutting this back, it is a treat and I don’t have to see it on the credit card statement.
- If you have $150 for the month, you can decide if it is spent on fewer more expensive meals or more, less expensive meals.
Set aside money each month to buy clothes as needed for you and your family.
Thrift shops and Goodwill are options to shop to spend less than the mall or other stores. Watch for sales and if there are coupons, use them. Another suggestion is to hand down clothes that don’t fit or you just don’t want anymore to others. Growing up, I had to hand me downs and loved getting all those “new” clothes. When my kids were young, we had friends where we would hand down clothes to each other from time to time.
- There may be no expenses for some months, but by accumulating the money, you’ll be ready when you do need something.
My husband and I decided together how much we would each get per week. Some call it allowance, but it sounds like we’re kids, so I changed the name!!
- This covers the little things that come up during the week.
- Examples – lunches, gadgets and other things we want
Birthday, holidays, and other special occasion gifts.
- Work on a gift list for the year.
- Include special occasions like Mother’s Day, Father’s Day, and others
- Put a dollar amount by each gift to come up with a yearly amount.
- Divide the yearly amount by 12 months to get the amount needed to budget for.
- If the monthly budget does not allow for this amount, decide where you can cut back and adjust it.
Filters for air conditioners, ink for a home printer, paper, buying items to support schools and organizations that are selling things like popcorn, cookies, wrapping papers, poboys, etc.
No matter how hard I tried to budget everything, there were some items I just could not anticipate. These types of expenses would put us over budget, so I started just having a little extra money in some category to hopefully cover these.
There may be other categories you want to use cash for. Every budget is different, so adjust as needed.
Wallets and Envelopes to Keep Cash Organized by Category
Cash Envelope Wallets
This is the type of cash envelope wallet below is what I use that holds multiple categories of money to keep them separate and organized. There are dividers to have the category labeled. This looks nicer than pulling out the old fashion envelopes we use at home. I’ve tried to just keep all the money together, but without some type of system, I get the categories mixed up.
I don’t keep all the cash with me for all categories. When I know I’m going to the grocery store, I put that money in my wallet. There are several times when I’ll have my spending money, grocery money, and another category in my wallet. That’s what I love about my wallet since I can keep track of the different categories. There are different slots with a place to put the name of the category so that they’re labeled appropriately. If not, I’ve gotten them mixed up and forget what is for each category.
This works the best for me so that I’m not carrying a lot of cash with me. When I get home, I take out what I don’t need. This works for the most part, although sometimes I find that I’ll need something that is not with me. That is when I’ll reimburse another category. I try to limit this, but life happens. Learn more about the Best Cash Envelope Wallets.
There are many types of cash envelopes available. You may need to try different types of money envelopes until you find what works best for you.
These envelopes allow you to track all of the expenses on the outside of the envelope.
Here is another example of preprinted cash envelopes.
You can also use a cash envelope template to make your own.
I use the old fashion cheap paper envelopes. I can seal them up, write on the outside what expense category it is and the dollar amount. It is also an inexpensive option when I need to make a new one. You can get these anywhere. I don’t track the expenses on the envelopes, but you can.
I seal the envelope so I’m less tempted to pull money out for different reasons other than what it was intended for.
There are multiple variations of how to use the cash envelope system.
Other Important Information
When the money is spent, the envelope remains empty until it is replenished the next scheduled time.
The less money you have with you, the less tempting it is to spend it.
With that said, there is some planning involved to know when you are going to buy groceries, clothes, etc. to have the cash with you.
Sometimes I’ll use what I have and “reimburse” that fund when I get home. I don’t recommend doing this often as it can get confusing.
Cash Fueled Life
If you need help in exactly how to implement the cash envelope system, this course called The Cash Fueled Life is very good. There is even bonus material with a video segment that shows what it looks like when going to the bank to get the exact cash you need for the envelopes and make extra money.
This course has 3 main categories plus a bonus section.
- Helps identify your “why” for the cash envelope system
- Shows how to set the cash system up
- Walks through establishing cash fueled goals
Check out The Cash Fueled Life here. I’ve taken this course and there is great information in it!
The Cash Envelope System Rewards
This is the best part! Besides being able to have more money for the goals you have set, you get more rewards!
Determine what you do with whatever money is left in the various categories each month.
The goal is to stay within budget. Whatever motivates you to work harder to do that should be considered. Perhaps you’ve been wanting to get away on vacation. Maybe you’re working to pay off debt. You may want to treat yourself to an item or not having to cook one night. There is no right or wrong answer. You can change it over the months or for different categories too. It’s your money.
You can start with one category if you want to try it out and then add other categories later.
The downside of this cash envelope system is that you must go to the bank or ATM to get the amount of cash needed to fund these categories. If you get paid via direct deposit directly into the bank, the cash system requires a trip to the bank that you wouldn’t have needed. If you get paid via check, you may be able to deposit it via a phone app, depending on your bank. Again, you would still need to make a trip to the bank or ATM.
The benefits of the cash envelope system are that it generally makes you spend less than a credit card. This allows you to limit the amount of money budgeted and spent in certain categories. This allows more money to pay or save for other things.
Generally, less money is spent when cash is used versus a credit card. To get started with the cash envelope system, determine the categories needed. These are common categories that cash works well with – groceries, clothes, pocket-money, restaurants, and more. Once the money is gone, the envelope will not be replenished until the next scheduled time. It is both challenging and rewarding to stay within the budget.