What is the cash envelope system?
A cash envelope system is a system where you use only cash for some parts of your budget. Once the cash is gone for the week or month in those categories, you make do with what you have and not overspend. It really is that simple. Although, it can take a little bit of getting used to.
Having a cash envelope system can be as simple or as elaborate as you would like it to be. For me, I like simple. So that is what I am going to show you how to do in this post.
There are some categories that will not go into this system. For example, bills that are automatically paid or mailed in, you would not need cash envelopes for those parts of your budget. The items that you pay in cash, or could rather than using a credit or debit card, those would be categories that you could use cash envelopes for.
The goal for this is to help you set a budget and to not go over it and to help you to save money. It can be easy to spend more than you had budgeted for if you are using a credit card to pay with. It is harder to do that when you are paying with cash.
How does the cash envelope system work?
A cash envelope system can be such an incredible and simple tool to help keep your money working for you. You are telling your money where it is going. After you decide what items in your budget you want to allocate for cash, you then can decide how much goes into each envelope. Discretionary expenses are good for this system. They are things that we can cut out of our budget if necessary or if you would simply want to. An example of a discretionary expense would be going out to eat.
- Tip 1: Determine your discretionary and non discretionary expenses
- Tip 2: Determining how much at a time
- Tip 3: Gather your supplies
- Tip 4: Envelopes
- Tip 5: Enjoy the benefits
Tip 1: Determine your discretionary and non discretionary expenses
There are some expenses that we have each month that are non discretionary. Meaning that their cost stays the same. For example your house payment. Some categories that would fall under this such as utilities can fluctuate but are still pretty much set. These are items also that you may already have taken automatically out of your account or send payment in through the mail. Here are more examples of non discretionary expenses.
- Insurance
- Property taxes
- Medical payments
- Utilities
Non discretionary expenses are categories that we have more control over. For example, groceries. In a cash envelope system, items that can fluctuate that we have control of would be included. Here are some more examples of non discretionary expenses.
- Groceries
- Gas
- Going out to eat
- Extra spending money
- Haircuts
- Pet care: food, grooming, etc.
Tip 2: Determining how much at a time
Another thing to decide is if you want to set money aside per week or per month. Decide what you prefer and is easiest for you. Do you want to keep enough cash in your envelopes for the week or for the month? I tend to do this per week. I like to divvy it out into smaller amounts. That is just a personal preference.
Now you get to pick out what categories you are going to include in your system. You could choose one or several. It is up to you.

Tip 3: Gather your supplies
Now that you have determined what items will be paid in cash, gather an envelope for each one. Depending on how you would like to keep your envelopes, you may want to make a budget binder. That could be a place to possibly hold your cash envelopes in. The only other item you need is something to write with. Remember it does not have to be fancy. Unless of coarse you would like it to be.
Tip 4: Envelopes
Now that you have determined what categories will be paid for in cash, and how many weeks at a time you will keep in cash, it is time to mark your envelopes and stuff them.
A simple way to mark your envelopes is to write the month and the category on the outside of each one. Then you could write the dates for the current week you are on and the total amount for that week. As you use money for that category, deduct that amount on the envelope from its total. Once you have finished that week, draw a line through it. Underneath it, write the week and dates and total amount for week two and so on.
If you have money remaining from the week before, consider rolling it over. It is nice to have some extra money on hand in case there may be anything extra you may need. Another idea is to put the extra money into savings.
Tip 5: Enjoy the benefits
Now enjoy the benefits of having your cash envelope system. The benefits include, not overspending and staying within your budget. It can be such a wonderful feeling. I have found that this simple system has saved us money.
Just think about all of the things you could save for when having your budget work for you. You are telling your money what it should do. Remember, it is not always the big things that can save us money, but rather the smaller things too.
Conclusion
The cash envelope system is a simple system that can help you save a lot of money. Having cash to pay for items with can tend to make us spend more carefully. Whereas it can be very easy to spend more when using a card. Please share in the comments if you have or are using a cash envelope system and how you like it. Thanks!
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