You might wonder why I use cash envelopes for monthly budgeting – especially in a world where to be cashless is increasingly the norm.
In my post today, I explain exactly why it works for me, so you can hear my story.
- 0.1 So what are cash envelopes and the cash envelope system?
- 1 Rules for the Envelope System
- 1.1 Rule 1
- 1.2 Rule 2
- 1.3 A Cash envelope stop me spending too much
- 1.4 A cash envelope makes me ask harsh questions of myself
- 1.5 New Cash Envelopes for free! Subscribe below!
- 1.6 With a cash envelope, I can see the cash in front of me – it is a real thing
- 1.7 Defined budgets in different places
- 1.8 Being creative
- 1.16 Questions about cash envelopes from readers.
- 1.16.1 Maybe you are thinking….
- 1.16.2 But Elly, money envelopes are so last century – No-one carries cash now!
- 1.16.3 Elly I’m worried about getting mugged with cash envelopes on me. It’s a real concern. What would you suggest?
- 1.16.4 What if my spouse goes shopping or buys something once in a while?
- 1.16.5 How do you manage your fixed expenses?
- 1.16.6 Do you use the cash envelope system? What do you find great about it?
- 1.16.7 Pin me for later!
- 1.16.8 If you want to smash your budget, by saving extra money every month, read these posts on specific ways of saving money:
- 1.17 Another way of boosting your household income is through getting cashback
- 1.18 Go through my refer a friend link for Quidco and receive £10 cashback free.
- 1.19 Top Cash Back is brilliant too!
So what are cash envelopes and the cash envelope system?
Dave Ramsey is well documented as promoting this approach. Basically it’s all about taking budgeting back to pure cash. It helps you save money by having the money physically in front of you as you pay for items. The theory is that you will be more likely not to overspend, because you are handing over real cash and not just tapping a card reader.
You have different amounts of cash stored in different envelopes. The budget is determined by you and what you can afford.
For me, cash envelopes work best for things like:
- eating out
- coffee (if you love your coffee house coffee like me!)
Here is an example of one of my cute printable envelopes:
Rules for the Envelope System
Don’t withdraw your whole budget for the month for the larger spends. For example, if your grocery budget is £300, withdraw £150 for the first 2 weeks from your bank. Then 2 weeks later, withdraw the final £150 and put that into the envelope. This is your budget for the month. By withdrawing the second £150 at this point, you are forcing yourself to live on exactly half of your shopping budget, for two weeks. It prevents an early overspend.
Never transfer money from one cash envelope to another. If you are in the grocery store and as you are shopping, you figure you are about to overspend by £10, put that amount back and keep the essentials. It is strictly about keeping within the budget in each budget area. Challenge yourself to use food from the cupboard, or bulk freeze meals, to cut costs of grocery shopping further.
You may be thinking:
Why use a cash envelope when it’s so easy to use my card?
Why bother clunking around with coins and fumbling at the counter?
A Cash envelope stop me spending too much
Are you like me, where if you actually see a wadge of money, you think OMG that’s loads of cash – I just can’t spend that! Every time I delve into my cash envelope, to buy anything, I become painfully aware of exactly how much I have left for the month.
It makes me maybe wander round the shop once more, and work out if I can spend what I plan to spend, or whether I can get through the month if I empty my cash envelopes too early.
A cash envelope makes me ask harsh questions of myself
They are colourful pretty little controls for me. Haha – have a cash envelope make me accountable to myself. Like.. ok, so if I buy that coffee today, can I sit and blog in a cafe at the end of the month? Or if we go out for that meal, will be afford to get through the rest of the month without any other treats?
It’s like I have an internal conversation that my debit card or credit card never inspired. This internal talk for me, leads me to keep within my budget. It’s like I’m bargaining and planning at the same time with myself. Cash from my debit card or credit card used to fly out without any pain, until the end of the month, when I would frequently end up in overdraft unnecessarily.
New Cash Envelopes for free! Subscribe below!
With a cash envelope, I can see the cash in front of me – it is a real thing
Ok, so abstract thought doesn’t work for me with money. Mr Budget goes on about – put it on a spreadsheet Elly, it’ll save you time. And yes, he’s correct, but for all the pretty little spreadsheets in the world, I have never had one that made me actually stick to a monthly budget. As a thirty something, I vaguely remember when my mum used to use cash all the time. When my time came to manage money, it was all about debit and credit cards, and no REAL coinage in my hand.
Seriously I think this could have contributed to an absolute lack of respect and a sense of arrogance towards money I had into my early twenties. I only realised I needed to go back to cash, when I originally read Dave Ramsey’s book.
So from there, I adapted my monthly budgeting to include cash envelopes in certain areas. Since I have done this, I have seen a noticeable reduction in my spending in these areas. Mr Budget is becoming a lot more patient at the counter, when I am paying now, because he has seen the difference it has made. He is so impatient and at first, was embarrassed at the way I used to fumble around with cash. My reaction was just to think – I am making a difference every day to our lives, so the people behind me can wait.
So you don’t get caught out at the counter fumbling with your cash envelopes, just some cash out into your hand, before you go into the particular shop you are using the cash envelope with. It ensures you are calmer, and less likely to drop the cash, especially if you are not used to handling it as much as you do when you have cash envelopes.
Defined budgets in different places
One thing I found incredibly difficult, when I’d set my monthly budget, was actually keeping track of the different amounts I was spending on each budget area. Before I used cash envelopes, it was incredibly easy to overspend in one area and give myself a quick internal excuse for why I had done it. Then I used to move on and just let the overspend happen. Not really a strict budget. For me, I had to show myself EXACTLY how much money was left in each of the budgets I was likely to overspend on.
On the cash envelopes I developed, I have included an expense tracker, that sometimes I use and sometimes I don’t. I’m a really graphic person and if I know I probably can’t have another coffee until say next week, so I can spread out my budget, I need to see what’s left to really get the message through that these coins don’t grow on trees!
To keep things interesting and to keep me from becoming demotivated before I reach my goal, I need to make things fun and colourful. I’m excited just printing out my new cash envelopes for the month, and it has really become a big deal for me! I know, I know – I am such a geek!
Pin me for later!
Questions about cash envelopes from readers.
Maybe you are thinking….
But Elly, money envelopes are so last century – No-one carries cash now!
Cash, as a system, isn’t favoured by many people anymore, as manual budgeting can take a long time. Cash is fiddly and can be heavy, but it is working and I am hitting my goals every month, as now I am only able to spend what is physically allocated to me, and I don’t let myself spend out of our current account.
Elly I’m worried about getting mugged with cash envelopes on me. It’s a real concern. What would you suggest?
This question comes up a lot. Yes I hear you – I felt a bit exposed having cash in my handbag for the first time in years.
I tend to use a spare cash envelope if it is say a grocery shopping trip. So my main grocery cash envelope stays at home, and I might for example, take out £50 to cover my shopping. When I get home, I put the cash back into my main grocery cash envelope. That way I carry less cash.
The other way I think about it, is that statistically you are at the same amount of risk of someone stealing your bag and accessing all your data on your phone, or using your contactless debit card. Every day, I don’t tend to worry about any of this, so I made the decision to stop worrying about having cash stolen.
This month, I have purchased a filofax mini binder, that I am going to use to carry my cash envelopes in, to minimise the risk of them falling out of my bag. When I receive it, I intend to redesign my cash envelopes, so they sit within this binder. I can’t claim this idea as my own. One of my biggest inspirations now is the budget mom – Komiko has developed her cash envelopes around a filofax organiser and I just think it’s such a cool idea! I’m such a geek and I can’t wait to receive my filofax organiser!
An organiser for cash envelopes?
This is the one I went for! It’s so cute! I love aquamarine as a colour. As you can see, there are other colours too.
What if my spouse goes shopping or buys something once in a while?
You can organise this in a number of ways.
Not keen on cash envelopes…
Mr Budget is not so keen on using cash envelopes, so I just keep a note of his spending and pay in the difference that should have come out of the cash envelopes, with whatever is left at the end of the month. This means I have to leave quite a bit more spare money in the envelope than I think he will spend.
Wants to use cash envelopes…
- If your spouse is really keen to use the envelopes, why not keep them at home, and if you guys know your spouse is due to do the grocery shop, they can take the envelope from where you keep them.
- If your spouse say for example, tends to spend approximately £50 a month, and the whole budget is £250, make a cash envelope for you with £200 and a cash envelope for him for £50. Just keep adjusting the amounts until you have got the approximate spending spot on. It could take two or three months to get right.
How do you manage your fixed expenses?
For our fixed household expenses, I keep this money in our current account. When I am setting my budget, I put all these onto my budget sheet, so I know how much money will go out on direct debit.
Anything that I control using a cash envelopes, I mark on my budget planner with CE (cash envelope).
This is the budget planner I use here:
I also have a free budget sheet, if you want to test this out, without paying anything. It contains the major budget areas for a general household budget and space for you as an individual to add your own items.
Do you use the cash envelope system? What do you find great about it?
Add to the comments section, so we can all benefit from your ideas.
Pin me for later!
If you want to smash your budget, by saving extra money every month, read these posts on specific ways of saving money:
- How to Save More Money Each Month By Cutting Personal Spending
Another way of boosting your household income is through getting cashback
I earned £50 just for booking my hire car through Quidco first.