ready to start the cash envelope system!

[crazydoglady]

Any tips, words of encouragement, advice?

[jdp]

Make it work for you. Experiment. Take advice with a grain of salt. Because if you don't make it work for you then it won't be much help and giving up will be too easy.

Tweak, review/restructure weekly if you have to until you get it right.

[Lilly]

What's the cash envelope system?

[crazydoglady]

I'm not exactly sure, as I've asked twice and can't seem to get anyone to explain it to me. But from what I've gathered, you divide $$ into classified envelopes use money from that envelope only, and it has to last you X amt of time. I believe it is a system to break away from using debit & credit cards, which often lead to mindless spending (the financial version of out of sight, out of mind) and helps you get a view of where your money is going, since you have to track expenses more closely to make sure your money lasts you for the designated amount of time.

i.e. we would put $300 in an envelope for groceries and that had to last us 1 month. then, if after closely tracking our grocery spending for the month, we come out with $50 extra dollars, we not only have saved money, but we've figured out our problem spending areas.

apparently it's one of those things where you just have to jump in with a trial and error mindset, to find the perfect system for you.

[72Tiger]

Sounds like you have the basic idea. Two things helped for me when I started it. First keeping it simple was very helpful. A smaller number of categories (envelopes) is easier to keep track of. Second, I tracked everything I spent for a couple of months before I started, because I literally had no idea where my money was going, and thus how much to put in each envelope.

Also, I look at it in a small way as a method to avoid overspending with debit/credit cards, but more as a way to simplify keeping on a budget. You budget so much per envelope at the beginning of the month, and anytime you want to see how you are doing in that category, you just look in the envelope, and see how much you have left.

[Lilly]

Thanks for the explanations. Luckily I can do that in my head. Guess that's why credit cards arent' a problem for me.

[firstourselves]

Several readers have asked how the cash envelope system works. I wanted to share how I use this system, although I'm sure there are as many permutations as there are ways of spending money.

Some of our monthly bills are automatically paid every month, such as our mortgage or utility bills. There are a few other places where I write a regular monthly check---like my son's preschool tuition, or my daughter's guitar lessons. Aside from those expenditures, I get the rest of our monthly money out in cash for our spending. I have several envelopes, from groceries, to household, to gifts, where I allocate the cash according to our budget.

Then, throughout the month, I (and my husband) use cash for our purchases. I don't usually take the entire envelope out with me if it's an especially large sum, such as our grocery envelope. Instead, I'll take $75 or $100 with me to the store, and bring back the change. And, yes, this can be putzy---as when I go to Target and buy something from the household fund, something from the gift fund, and something from my allowance fund. (My husband and I each get a small monthly allowance, an entirely different subject. But one I highly recommend for couples: it's saved us many a money argument, as we each have autonomy to spend our "fun" money however we choose.) This entails some juggling, and carrying more cash on person. I do purchase some things online; then I subtract my online purchases from the amount of cash in that category, and redeposit the cash in my bank account. Yes, this takes some management. And yet I stand by my system, because it's been the one way we've consistently saved hundreds of dollars every month to apply to our goals of being debt free and increasing our savings.

In many ways, the cash based system is like Quicken, in that it allows you to track your spending. But where Quicken records your spending after the fact, using a cash envelope system records your spending during the fact. Both take some time and effort; but the rewards are worth it to me.

Why do I favor the cash envelope system? There's something about parting with physical cash that is different than paying with a check card or a check. It feels more real. I'm more reluctant to spend it: I really question my purchases. It keeps me disciplined, where I stick to my budgets. Also, as a visual person and a visual learner, I find it easier to monitor and adjust my spending with cash: I can look in the envelope and actually see how much money I have left, versus a number on an excel spreadsheet.

Plus, when you have $1000 or $2000 or $3000 in the bank, it's easy to think that you can go $25 over budget on your brother's birthday gift, expand your clothing budget, or splurge on an extra dinner out, without consequence. But those numbers add up. I see that very clearly with a cash system. Before my cash days, I saw that, but when it was too late: at the end of the month, when I was down to my last $100.

But, different strokes for different folks. Try it: if you like it, stick with it; if you don't, find a system that works for you. But I do encourage you to track your spending: it can give you loads of information about how you spend money, why you spend money, and how you can develop more positive beliefs and mindsets to achieve your financial goals.

[jenai]

I agree - keep it simple.
I had a friend many years ago who used a much simpler version. He used his checkbook and wrote checks for all his bills but used the envelope system only for his daily allowance. This included his eating out money and blow "pocket" money. He was a bachelor and didn't cook long before it was normal to eat out daily. This was 26 years ago and his daily allowance was $7. At the end of the day he would put his extra pocket change into a jar that was his "cruise fund". He had $900 in change at the end of the year which was a lot of money in '82.
I guess my point is that I have seen less complicated versions of the envelope system that work in just keeping one on track with their problem areas since we can't do much about the reoccuring expenses like gas - car payments - utilities - mortgages etc......
I say start off small and get comfortable with tracking your "blow money"....

[catlady03]

We've been using the cash envelope system now for about six months, and it's worked great. We only use it for things we normally pay cash for - not things we need to mail checks, like utilities, mortgage, etc. We buy firewood, and it can get expensive, but not if we're putting only a few dollars a week in the envelope. How nice it will be to pull out the envelope in the fall and have all the money we need to stock up for wood for the winter!

[laceylyn77]

Check out this site for some fashionable cash envelopes!

http://laceyandtyler.blogspot.com/20...-clutches.html