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How To Budget With The Cash Envelope System?

Since you’re here, you may be wondering how to budget with the cash envelope system.

I have to admit the cash envelope system is my personal favourite way to budget. It just works so well for me.

So, when it comes to creating a budget, you’ve got to pick a budgeting method, too. It’s an essential step in the process.

There are other budgeting methods as well, but I’ll talk about how to budget with the cash envelope system since I’m also using it.

At first, it may seem old-fashioned, but this can be a very effective yet simple budgeting method for taking control of your spending, paying off debt and achieving your financial goals.

Also, this method will bring you back in charge of your finances and guide you towards achieving all your financial dreams. So, why not give it a try?

But what is the cash envelope system, anyway? Well, read below for more.

What Is The Cash Envelope System?

As already mentioned above, the cash envelope system is a budgeting method, and it’s a visual and material one.

You don’t look at numbers on a spreadsheet as you have physical envelopes filled with cash.

Also, you don’t have plastic cards to swipe around, but you hand over actual cash for your purchases.

So, the part ‘cash’ refers to actual money, and the part ‘envelope’ refers to physical envelopes filled with ready money.

And that’s how you get the cash envelope system for budgeting your money.

Keep in mind the envelopes represent your budget categories. So, the number of budget categories you have should be equal to the number of envelopes needed for each budget category.

Imagine you have separate envelopes labelled for different expenses like rent, utilities, groceries and so on.

So, each month, you allocate a predetermined amount of cash to these envelopes based on your budget. As you go about your month, you use the money from each envelope for its designated purpose.

The beauty of this system is that once the cash runs out in a particular envelope, you know you’ve hit your spending limit for that budget category.

It’s a great way to stay on track as you become more conscious of your spending habits.

Plus, using physical cash helps you avoid the temptation of overspending that often comes with credit or debit cards.

So, you don’t have plastic cards to swipe around, but you hand over actual cash for your purchases. For instance, when you’re new to the cash envelope system and see how money leaves your hands once or twice, the third time you’re more mindful of your purchases.

But how to budget with the cash envelope system? Well, delve into the next section for more.

How To Implement The Cash Envelope System?

Before you head to the main point on how to budget with the cash envelope system, there are a few things you need to know. These will help you understand the process better and make it easier to implement this budgeting method.

First, everyone’s financial situation is unique, and so is yours. And this leads to the second point, which is everyone’s budget is individual, and so is yours.

Keep in mind this is due to your income streams, monthly expenses and financial goals, to name a few reasons for this uniqueness.

For instance, some people have larger envelopes for fun and entertainment, while others may have larger envelopes for their pets.

Plus, this is one of the reasons why you should never compare your financial situation to those of others. It’s not worth your time and energy.

Next, set realistic and attainable spending limits for each budget category, but make sure these limits are not too restrictive, as this will cause burnout. Plus, you’ll give up before you even start, which is something you need to avoid at all costs. 

So, realistically, how much can you afford for each of your envelopes? *(Make sure you keep your answers private, only for you).

This budgeting method can be very effective for your finances if you give it a try for a few or more months.

Also, you should know that you can’t pay for everything in cash. For instance, you might make payments for your utility bills online and pay your rent as you usually do. And don’t forget that you put aside money into a savings account as you regularly do.

Once you’ve done all that, it’s time to stand in front of the ATM and take out the rest of the money so you can put it into your envelopes.

#1 Make A Budget

Make a realistic budget, as this is needed for proper money management and achieving your financial goals.

And once you create a monthly budget, pick a budgeting method, too. There are other budgeting methods as well, but I’ll talk about how to budget with the cash envelope system since I’m also using it. And this is already mentioned above.

So, creating a budget using the cash envelope system is a simple yet effective way to manage your finances.

First, list all your income streams and monthly expenses and allocate specific amounts to each budget category, such as groceries, transportation, etc.

Allocate specific amounts of cash for each budget category and place them in separate envelopes. And don’t forget to set aside envelopes for non-essential spending too, like eating out or hobbies.

And, each time you make a purchase, take the cash from the relevant envelope, as this helps you stay within your budget and avoid overspending.

Also, regularly track your expenses and adjust the budget as needed. This system helps you stay accountable, prioritize essential spending, and avoid overspending.

So, that’s why I always say: ‘Try out.’ So, try out until you figure out how to budget with the cash envelope system.

#2 Identify Your Budget Categories

It’s always a good idea to start with your budget categories, which include essential monthly expenses such as rent, utilities, groceries and transportation.

As mentioned above, you should make payments for rent/mortgage and utilities as you usually do. 

So, the last two essential monthly expenses are groceries/food and public transportation/car, for which you’ll use envelopes.

Once you’re done with it, you should assign envelopes for your non-essential expenses, such as fun/entertainment, beauty/personal care and miscellaneous.

Your entertainment/fun money should include going out, eating out, nights out with friends and anything else that helps you to socialize with people.

Also, always have an envelope (budget category) for miscellaneous because you never know if anything unexpected may arise, so it’s better to be prepared.

Additionally, as women, we should always have a budget category for beauty/personal care. We also need to look good, not just feel good about ourselves.

Next, if you count the number of envelopes for each budget category mentioned in this section, it’ll be five.

Remember, this is just an example and feel free to include more envelopes or different budget categories if needed.

You should also know that your monthly expenses represent budget categories, and your budget categories represent the envelopes. Everything is so linked up, and you can’t have one without the other.

When setting up your budget, don’t go overboard with the number of envelopes for your budget categories. Try to keep it to a maximum of seven envelopes. Also, make sure you don’t exceed this recommended limit.

But if you want two more, then add two more. It’s up to you.

But why do you need only seven envelopes?

Because if you have for everything and anything, your budgeting will become a real mess. And this will make you entirely give up on budgeting. Don’t do that to yourself.

So, when wondering how to budget with the cash envelope system, it’s necessary to identify your budget categories.

#3 Set Spending Limits For All Budget Categories

So, once you identify the budget categories for your envelopes, it’s time to determine the amount of money for each envelope. Setting a limit is very important, as that’s how you know how much money to put in each envelope.

Well, this budgeting method revolves around taking a strategic approach to managing your finances.

So, by determining how much money you can realistically allocate to each budget category, you can ensure that you are in control of your spending and are working towards your financial goals.

Also, it involves dividing your funds accordingly and physically placing the allocated cash into specific envelopes assigned to different expense categories.

Plus, this way, you have a visual representation of how much money you have left in each area.

Remember, this budgeting method can help you better manage your finances and stay accountable to your financial goals. It also encourages mindful spending and can help you stick to your budget.

So, when wondering how to budget with the cash envelope system, consider setting spending limits for each budget category.

#4 Fill Your Envelopes With Cash

After you set your spending limits, it’s time to fill your envelopes, but first, withdraw money from the ATM.

It’s better to withdraw all your money at once instead of doing multiple transactions so you can avoid ATM fees.

Once you’ve done that, spread the money into your envelopes. Also, the key is to spend what’s in the envelope only. Once the money is gone in the envelope, then there’s no more spending in that budget category.

Of course, you can always borrow money, but then you’ll never learn to control your overspending.

Remember, borrowing money puts you in debt, which can quickly get out of control.

Additionally, once you spend some money from an envelope, then write it down, either on the envelope or in a spending journal.

That’s how you keep track of the remaining cash in your envelopes, and you also keep track of your expenses.

But that’s not everything.

You’ll have to decide when you’ll fill your envelopes again. For instance, if you receive a paycheck once a month, you should have enough money throughout the month until you’re paid again the next month. Although this is easier said than done, it’s not impossible.

So, how often you’ll refill the envelopes depends on how many income streams you have throughout the month.

It doesn’t necessarily mean that it should be only one income stream. The more income streams you have, the better off you’ll be.

#5 Adjust As Needed

The idea of using cash envelopes for budgeting is a great way to stay organized and disciplined with your expenses.

Also, by using a specific envelope for each spending category, you can visually see how much money you have left for each area.

Once you’ve emptied an envelope, it’s a perfect opportunity to reflect on your spending habits.

Did you allocate enough funds for that budget category? Or do you need to make adjustments to your budget?

Your spending limits are not set in stone, so likely, you’ll have to adjust your budget along the way. It’s best to adapt your budget as needed.

Also, if necessary, you can shift some funds from one envelope to another but always keep in mind your overall financial goals.

For instance, some envelopes have more amounts than needed, and others are so tight. Then, make adjustments as needed.

Additionally, it’s essential to remain mindful of your spending and make informed financial decisions.

So, create a budget that’ll help you stay on track with your finances and one that follows your preferences.

Remember: it’s your unique financial situation, so it should be your one-off budget which follows your preferences.

So, when wondering how to budget with the cash envelope system, keep in mind that sometimes you’ll adjust your budget when needed.

#6 Stick To Your Budget

Sticking to a budget is often easier said than done, and it can be a challenge but can be done even with the cash envelope system.

So, by using this method, you allocate a certain amount of cash for each spending category and keep it in separate envelopes.

Also, when taking the necessary cash from each envelope when you need to make a purchase, you create a visual reminder of your spending limit.

The beauty of this system lies in its visual reminder. Seeing the money gradually deplete serves as a constant reminder of how much you have left to spend in that category.

Also, it acts as a powerful deterrent against unnecessary purchases, as you become aware that each purchase reduces your available amount of money.

So, by utilizing this simple method, you’ll be more likely to resist unnecessary purchases and maintain control over your finances.

Where To Find Envelopes?

If you’re wondering where to find envelopes, here are three ways to get them.

Brick-and-mortar stores – where you can buy plain white envelopes, and they are cheap. I know because I use them.

Amazon – not just plain white, but you can find colourful envelopes too.

Make it yourself – if you’re more of a DIY person and very creative, then why not? Make it yourself.

Is The Cash Envelope System The Same As Cash Stuffing?

Cash stuffing is when you divide your cash into envelopes, each one representing a different budget category.

Sounds familiar as the cash envelope system? It should be because it’s the same thing.

And actually, it is the same.

So, cash stuffing, a popular term and trend on social media, is essentially the same concept as the cash envelope system. It’s just a catchy way of referring to it.

It’s the same budgeting method, just a different name.

The Benefits Of Using The Cash Envelope System

There are a few benefits of using the cash envelope system. Some of them are below.

It can help you control your spending – when you’re handing over your hard-earned money for your purchase. Plus, you see how your banknotes leave your hands and go to the merchants’ hands. Next time, you’ll think twice before making a purchase.

Eliminates the reliance on credit cards – when you stop using credit cards, you also stop accumulating interest and late fees and payments to the bank. You’re more prone to using actual cash for your purchases, and this helps you avoid debt.

You become aware of your spending habits – you naturally start to reconsider unnecessary purchases. Also, you gain clarity on where your money is being spent.

Offers flexibility – no matter how old you are, the cash envelope system can be helpful for everyone. It’s important to remember that your financial priorities can change over time, so the number of envelopes and the amount of money in each one may need to be adjusted. It’s all about finding what works best for you. So, it’s flexible and adaptable to your changing needs.

Final Thoughts

Well, I hope all of the above will be helpful on how to budget with the cash envelope system.

Keep in mind that the cash envelope system is an effective tool for managing your finances and reducing impulse purchases.

Also, by using physical cash instead of digital transactions, you become more aware of your spending, making it harder to overspend.

It also allows you to avoid accumulating unnecessary debt and prioritize your financial goals.

So, don’t hesitate to give it a try and start using cash envelopes today.

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