Have you ever spent more in a month than you planned on things like on groceries and entertainment? Imagine if you never had to worry about overspending in either of those categories again! Keep reading – I’m about to tell you how it’s possible.
Prefer to watch? I created a video containing the same content as this article!
If you’re the type of person who uses a debit or credit card to purchase everything from groceries to haircuts, you probably know how difficult it can be to keep track of your spending during the month. You go to the store every week, grab what you need, swipe your card at checkout, and you’re on your way. Then you look back at the end of the month and realize you spent way more than you ever intended to. It happens to all of us.
If you’ve taken the time in advance to create a monthly spending plan, this can be especially demoralizing. There you are, doing all you can to take control of your money but somehow it just keeps misbehaving. Sound familiar? If it does, you just have to try the cash envelope system.
What is the cash envelope system and how does it work?
Alright, so first let’s talk about what the cash envelope system is. It’s really a simple system, but it does require you to make a spending plan in advance, at least for certain areas of spending. If you want to learn how to create a detailed monthly budget, or as I like to call it, a spending plan, click right here to read my post about how to create a budget! Once you have the plan in place, you want to look for categories and places you spend money every month that will accept cash. Some possibilities are groceries, cleaning supplies, restaurants, and fun activities. The easiest and most common use for the cash envelope system is groceries, so if you’re new to the system, this is the one category I suggest you start with.
At the beginning of every month, you stop by the bank and take out cash equal to the amount you plan to spend in each of these categories. If you planned to spend four hundred dollars on groceries this month, you’d take out four hundred dollars and put it in an envelope marked groceries. Whenever you go to the grocery store, pay using the cash inside that envelope. Don’t use your debit or credit card, and don’t use any other cash.
Side note: Some people like to bring the entire envelope to the grocery store with them, but I don’t like carrying around that much in cash, especially at the beginning of the month when the envelope gets refilled. So I usually take about a hundred bucks out of the envelope and put it in my wallet before I go to the store, and put the change back in the envelope later. If you do bring the entire envelope, be careful – I heard a story once from someone who lost their envelope at the grocery store the first shopping trip of the month! That is not a fun way to lose several hundred dollars.
What happens when there’s no more cash in the envelope? Simple – no more spending in that category for the month! If you’re out of grocery money and there’s still a few days left in the month, it’s time to raid the pantry! I’ve been there once before, and it’s not the end of the world. In our house, we have one envelope for groceries and a second envelope for our date fund. This includes everything from mini golf to movie tickets to dinner at restaurants. Throughout the process of paying off our debts, the only cash that ever made it to the date fund envelope was the cash leftover from the grocery envelope the month before. That helped us keep our spending on entertainment to a minimum while we paid down debt.
What do you think of the cash envelope system? Is it worthwhile? Or do you feel like it’s not worth the hassle? Let me know in the comments.