The cash envelope system? Any fans?

[firstourselves]

My family instituted a cash based system this past month, and it's been eye opening. While we have consistently tracked our spending (we used Quicken to track every penny for a year), and budgeted our money, I still found myself feeling frustrated at the end of the month: Where did all the extra money go? I felt as if there were leaks in my pockets, checkbook, wallet, checking account...leaks that added up to $100, $200 or $300 a month.

Hence the envelope/cash system. One month later, what have we found? We found the leaks. This month, we have $527.48 leftover. I'm stunned. On paper, every penny of that money should have been spent---on groceries, home repairs, music lessons. So how did we come up with an extra $500? I admit, I was motivated to see how much I would have leftover come January 31. (All the extra goes towards paying off the last of our student loans.) An envelope system kept me accountable in ways that Quicken didn't. With Quicken, I was liable to spend $20 or $30 here and there on something I didn't really need...but would be nice. After all, I had the money. I wasn't putting something on a credit card.

But looking in the envelopes every week kept me thinking about creative alternatives: okay, I only have $50 left for household expenses. Maybe I can wait on new pantry jars, as nice as they would be to have.

Has anyone else had success using the cash system? I'm wondering if my first month's experience is beginner's luck, or reflective of a fantastic way of managing my income.

Cheers,
Karly Pitman
www.firstourselves.com

[Will]

$527.48? Congratulations Karly, that's terrific.

My mom uses a similar system while I was growing up and she was able to save a lot of money on a rather modest budget. She likes to mark off days on the calendar with a big red "x" to give herself a sense of accomplishment for keeping the family on budget for one more day. She is thrilled when the calendar is filled up with red Xs and there's still substantial amounts of money left in the envelopes.

[72Tiger]

I have used an envelope system for six different categories for almost a year now, and really like it. It is simple, and effective for me. One thing that I prefer to use a debit card for instead of cash is gasoline. I enjoy the convenience of swiping my card at the pump, and it keeps me out of convenience stores, and away from all the tempting junk they sell there.

Good luck with paying off your student loans!

[jdp]

Huge fan here! When my life was a shambles and I was trying to fix so many things this was the only way I stayed afloat. I still revert to it if I feel "out of control". But mostly it helped make conscious spending and 'pause b4 spending' a habit. I have since graduated into other fun 'versions' of it - now when I know there is $ for eating out and I resist the temptation I take the $ I would have spent ($10, $20....) and put it in my grocery money envelope (still have that one lol). When that envelope exceeds its $200 designation the extra $ goes into a vacation savings account that is impossible for me to touch until disbursement time (low interest but what I need lol). That could be once a week extra $ moving into special savings or once a month....I never keep the excess in the grocery envelope because then that just lets me overspend on unnecessary convenience items and junk.

[gtwise]

I'm not sure wich Quicken version you have, but Quicken 2008 has a system called my savings plan which essentially mimics the envelope system but you can still use your credit cards in the process. You set up a total amount you're about to spend in a month and then you set up your bills and other regular expenses, then you set up amounts for every category you want to spend money on and it will keep track of each category and it's set budget. I'm pretty impressed by it and how it works I just wish it could do bundled envelopes for all subcategories.

So yes I am a fan of the envelope system and Quicken 2008 implements it to meet most of my needs.

[Megan]

I am considering going to a cash envelope system for some of my expense areas. While I like using my credit card because it makes each purchase very easy to track (and I like the rewards - plus I pay it of monthly), the cash envelope system might help me stay on budget.

I think I'm going to try it first with groceries, starting when the farmer's market near me reopens this spring. I have to spend cash there, and should be budgeting that expense in with my groceries. Doing all my grocery purchases in cash might be the easiest way to stay within my budget.

[gtwise]

Originally Posted by Megan

I am considering going to a cash envelope system for some of my expense areas. While I like using my credit card because it makes each purchase very easy to track (and I like the rewards - plus I pay it of monthly), the cash envelope system might help me stay on budget.

There is absolutely no need to abandon credit card usage with the envelope system. Just make an extra "envelope" called "Monthly Credit Card Payoff". Every time you use your credit card just take money out from the corresponding envelope and stuff it in the credit card payoff envelope. So if you used your credit card to buy gas just take $50 (or whatever the actual charge was) from your "gas" envelope and put it in the credit card envelope. This way when the credit card bill comes at the end of the month you should have the exact amount that you need to pay right in the envelope called "Monthly credit Card Payoff".

I hope that makes sense.

Using Quicken makes it easy as you can set up yoru credit card as a spending account and it will accumulate expenses from credit card accounts and it will subtract from your total avaliable cash balance automatically.

[gtwise]

Every time you use your credit card just take money out from the corresponding envelope and stuff it in the credit card payoff envelope

Or better yet, just transfer the money from your checking account into a high yield savings account. If you're like me and use a credit card that not only gives cashback but gives you 15 months of interest free purchasing power just keep paying the minimum from the saving account every month and when the 0% on purchases is up just transfer the money from savings into your checking and pay off the whole balance.

This is one of the tricks for credit card arbitrage with purchase only promotions. I just charged $1300 for a bodyshop repair that the insurance company paid me for with a check. I'm depositing the checks into my high yield savings and earn 4-5% on it in 15 months. That's an extra $65 I could not have gotten otherwise.

[khorrell]

My family has used the envelope system several times during our lives, when we've gotten off track financially. It works every time! In fact, reading these posts has inspired me to do it again...I'm off to make my envelopes. I really liked the credit card envelope trick. Thank you, gtwise, for the suggestion. And I would love to learn any other suggestions that fit in this category.

[fred333]

I really like that system. I have found it to help me a lot.