4 Steps to Mastering the Cash Envelope System
My husband, D and I have used the cash envelope system from Dave Ramsey’s methods for about six years now. We can finally say that we have mastered the art of cash budgeting! While we still put somethings on our credit card (fully paid off every month), we successfully use cash for our everyday expenses.
I have previously posted on how we significantly slashed our budget after we first got married. The envelope system has played a HUGE part in that. As we are now preparing for baby number one, we have refreshed our focus and have become diligently tracking our expenses. Whenever D and I are approached with questions on budgeting, we always suggest the cash envelope system.
I will outline and explain why the envelope system works for our life and how we specifically use it. I know that everyone’s budgets are vastly different, but this should give you a good picture of what your budget could look like on this system.
- Realize that your paycheck is a real and tangible thing.
So many of us keep our paychecks locked in our accounts and haven’t touched cash in ages. Magic-swipey cards (aka credit or debits cards) have their place and we do use a credit card on a regular basis, but we pay the card off every single month with no exception. Whenever you swipe your card, what do you see? $8.75 at Starbucks, $15.50 at Target, $85 at the grocery store – it’s all really just numbers you see on your smartphone screen when you log into your bank’s app. It is so easy to swipe away until your paycheck is dried up and gone.
It makes you realize how much money you are spending when you have to fork over the dough yourself! To me, that is the most powerful way to impact your budget. I hate handing my cash over to the grocery store clerk or the cashier at Target even though I know groceries and personal care items are a necessity. Pulling cash out to pay for everyday things like groceries, pharmacy needs, eating out, clothes shopping, and entertainment helped to decrease our spending because we could see the cash leaving our pockets and were more aware of the actual costs of our activities.
- Keep the cash out of your wallet and keep it organized.
While this may sound contradictory to having a cash envelope system, it helps keep you organized. We have a small accordion file that fits in my purse that I found at Wal-Mart for $1. I have each spot labeled with what each section of cash is for. This helps us not to confuse our grocery money with our eating out money or our shopping money with our pharmacy money. Knowing exactly how much you have left is key! Short of keeping all of your receipts, this is how we track how we are doing over the month. If you keep all that cash cram-jammed in your wallet, you’ll never know what money is allocated towards any certain category.
Some envelope users also keep a ledger for each category of cash that they have. While it is a great idea, it just doesn’t work for us personally. I keep all the receipts I get from week to week inside the accordion folder under the tab dedicated to receipt keeping. This also helps me to remember to redeem any rebates on my smart phone (I have a whole separate post on this as well).
- Assess your current budget.
If you do not look at your budget and spending habits on a biweekly or monthly basis, start now! If D and I can feel ourselves spending more than normal we will do weekly check-ups. Why look at your budget more than once a month? It is to make sure you don’t look at your bank account or credit card statement on the 30th and say “Oh s*!t.”. Using a combination of mostly cash and a little credit card like we do, it is easy to run your budget to zero in a hurry if you don’t check on it.
We get paid on the 1st and the 15th. Those are the dates that we do our check-ups. It is also a time to pull out more cash for the second half of the month since it is not realistic for us to have bills coming out of our accounts and have a whole month’s worth of cash pulled out as well.
Here is a screenshot of our current budget (some totals removed for privacy). D is a stickler for numbers so everything is calculated to the penny. This can be something that we elaborate on in the future. We mark what we are paying in cash and what will come out of accounts or be put onto our credit card for points. What you don’t see is what our savings totals and additions are. We calculate those into our budget as well.
- Don’t be afraid to make changes.
Budgeting in today’s world when things can change so quickly can be a challenge. Understanding to be flexible with how you spend your money will help. If something breaks and needs to be replaced (car, appliance, phone, etc) we have an emergency fund for that. If we think we can fit it into our budget, we adjust other categories as needed.
You’ll see from the image above that we have an “Oops, I spent money” because we understand that we are going to go over by a few dollars here and there. It is also there as a buffer for an unforeseen expense. Every month, we add or take away categories because we understand that our needs will not be the same as the month before (oil changes, clothes, wedding gifts, etc).
Having the ability to adapt your budget to what is happening in your life will save you time, money, and heartache. Paying cash for most expenses will help you feel that control.