When is the last time you pulled out a wad of cash to pay for our groceries? I bet it has been a while. You probably swipe your debit card or even your credit card when you are out and about. Cash envelopes are the answer to your budgeting prayers!
WHAT ARE CASH ENVELOPES?
Simply put cash envelopes are envelopes you keep money in based on your budget categories.
WHY DO I NEED TO USE CASH ENVELOPES?
Cash Envelopes are Visual
Seeing $100 in an envelope is much different than seeing $100 listed in your bank account. When you can see and feel the tangible money you are more likely to think about your purchases.
You are much less likely to overspend when you are handing over the piece of paper.
Cash Envelopes keep you on Budget
You can not overspend when there is only $20 left in your envelope. It’s impossible.
When you are swiping your debit card or your credit card there is no limit (unless your card is declined). It is much easier to overspend in one category when you are not physically seeing the money leave your hand.
Cash Envelopes Change your Spending Habits
You may be wondering – “how can cash envelopes change my habits?”
Think about it – will you spend $5 on that cup of coffee knowing that your kid needs new shoes?
If you are using cash you’ll see that there is no money allocated for that $5 coffee. Will you take the money from another envelope to curb that craving? Probably not.
If you were using your debit card or credit card you wouldn’t have thought twice about buying that $5 coffee.
GET STARTED WITH CASH ENVELOPES TODAY
Write Your First Budget
Starting with cash envelopes can be a bit tricky. You may be tempted to go to the ATM and take out as much cash as possible. Don’t do that.
You will need to get your budget set up first before you can start using cash envelopes.
Setting up your first budget can be quick and easy when you are using a template.
The key to cash envelopes is knowing exactly how much money you need for each category. You’ll want to sit down and figure all of this out because if you guess you may overdraft your account. That is something we don’t want!
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Take Out Cash
Now that you know exactly what you need for your cash envelopes it is time to withdraw the money from the bank. Be sure you have enough money in the bank to cover all of your bills and upcoming expenses. You do not want to overdraft.
You may need to make more than one trip to the bank to withdraw your money for the cash envelopes. This is perfectly fine. You will need to find a system that works for your family.
I suggest taking a sticky note with the denominations for each bill you need based on your budget.
Here is an example:
Groceries: $450 (20s – 22 | 10s – 1)
Fun Money: $50 (20s – 2 | 10’s – 1)
Clothing: $100 (20s – 5)
Restaurants: $75 (20s – 3 | 10s – 1 | 5’s – 1)
Now when you go to the bank you will tell the teller you want 32 $20 bills, 3 $10 bills, 1 $5 bill. Then you can place the cash in the appropriate envelope without any issues!
Leave the Debit and Credit Card at Home
When you a first starting with the cash envelope system you may want to leave your debit and credit card at home. This will ensure that you stick solely to your cash and do not go over your budget.
Only use Cash for the Assigned Category
You have your budget set and you have decided how much cash you need. Only use the cash in the envelope for it’s intended purpose! You don’t want to get into the habit of stealing from one envelope to fund another envelope. This will keep you in the cycle of being perpetually behind.
Roll with the Punches
If you noticed throughout the month that you are low on money you will need to assess your budget.
Don’t be afraid to make changes to your budget and cash envelope system. What works one month may not work next month. You will continue to change your budget and cash envelopes based on your needs.
Give the Cash Envelope System Time
You won’t be perfect at using cash from the get-go. It is a process to retrain our minds to use cash. It will also take you some time to figure out your budget and what works for your family. That is perfectly okay. Do your best each month.
Progress Not Perfection
The cash envelope system isn’t meant to be perfect. You will have months where you need to change the budget or you’ll swipe the debit card. It is okay to not be perfect. As long as you are making progress toward your financial goals you are going in the right direction.
Give the cash envelope system a few months. You may want to start out with your worst spending habit. Maybe that is groceries. Only take out grocery money and work toward being cash only in that category. Then add another category next month when you are more comfortable with the system.
My biggest tip – don’t carry all of your cash on your at once. It is a risk to carry a lot of cash at once and you may be tempted to take money from another envelope. Only carry the cash you need!