Cash Envelope System by InspiredBudget.comI don’t know about you, but when I first heard of the cash envelope system, I was sure it was not for me. I mean, who would want to carry around all that cash? And what about the change?! “Those cash people are crazy” I thought.

Ha! The joke was on me, friend!

You see, cash envelopes are what helped me go from being a self-proclaimed spender to a saver. Cash envelopes helped teach me how to not buy all the things and develop this lovely habit I like to call “patience.” Let’s back up first though. To understand the full story, you’ll have to know that my husband and I paid off over $111,000 of debt on 2 teacher salaries (you can read more about that HERE and HERE). But to say that I jumped on the cash envelope system right away would be a flat out LIE.

You see, our family had hit rock bottom. We were young, married, newly pregnant, and had no earthly idea what we were doing. But we knew one thing for sure…we were spending way too much money each month. As in, we didn’t have enough money left over to cover daycare costs when our bundle of joy arrived. To help retrain how we spent money, we decided to start writing budgets and use the cash envelope system. 

Fast forward 8+ years and this little system of ours has no doubt saved us THOUSANDS over the years. I’m talking some serious money, people! We have totally changed the way that we spend and save money.

But I know what you’re thinking right now. You’re thinking “But Allison, I’m different. I don’t think that could work for me.” And to that I would say “Yeah, it is different. But don’t knock it until you try it.” That’s why I’m taking time today to outline what on EARTH the cash envelope system is, how to implement it, and how to REALLY KNOW if it’s right for you and your family!

What is the cash envelope system?

The cash envelope system is a fancy-schmancy way of using cash (instead of a debit card or credit card) for the areas of your budget where you tend to overspend.  Basically, you’ll take a look at your budget and decide what categories you would want to purchase in cash rather than a debit or credit card.  Not every category lends itself to being purchased in cash.  For instance, I wouldn’t recommend you pulling cash out of the bank to pay your cable or phone bill.  Below are the categories that our family usually pulls out cash for:

  • Food: Groceries
  • Food: Restaurants
  • Car Maintenance Sinking Fund
  • Haircuts
  • Fun Money
  • Clothing
  • Home Maintenance/Repairs
  • Entertainment

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How does it work?

Because I’m a Type-A person and absolutely love step-by-steps, I’m breaking this down for you in easy steps!

  1. Decide which categories in your budget you’d like to use cash. I recommend going back through your spending and figuring out where you tend to overspend. Also, decide if you’d like to use cash envelopes for saving money (read more about saving money with sinking funds).
  2. Once you’ve made your budget, decide which denominations (hundreds, twenties, tens, fives, ones) you want in your envelopes. Make a tally sheet so you know how much of each bill you want to take out.
  3. Then, place your bills into your envelopes. For instance, if you plan to spend $600 this month on groceries, then plan on pulling out 6 one hundred dollar bills and place them in your envelope labeled “groceries.”
  4. Take the envelopes with you when you need them. Once the money is gone, it’s GONE. This forces you to be careful with your spending and will force you to stay within your budget.

Pros Of The Cash Envelope System

It’s no surprise that I love the cash envelope system. For me, it has two MAJOR pros that make it worthwhile for me.

  • The cash envelope system helps you stay on track with your budget. If you stay committed to only using the money that you budgeted for each category, then you will, without a doubt, stay on track each month financially.  It’s a great plan if you stick to it and don’t spend money that is not in the envelope.
  • You might actually spend less money.  I tend to find it more difficult to spend cash than hand over my debit card.  I see the money right there.  I know it’s worth.  In fact, I can count exactly how much I have left and it helps me make more clear decisions about how I plan to spend my money.  Spending cash is harder, therefore I don’t usually spend as much.

Cons Of The Cash Envelope System

It’s clear that I’m a proponent of the cash envelope system, but I’ll be honest…no system is perfect. Yep, I said it. Let’s get real and dive into the cons below.

  • Carrying cash is kind of scary. I will not lie to you.  The idea of using the cash envelope system when I first started budgeting terrified me.   I was always worried that someone would rob me right when I walked out of the bank.  Paranoid much? I would also see the amount in my checking account decrease radically after my money was taken out.  Thoughts swam through my mind.  What if I didn’t have enough at the end of the month?  What if I have no cash and no money in the bank?  These were all legitimate (at least I think they were) fears that I had.  It took me trusting the system and seeing a difference in my spending to get over these anxieties and accept that my cash envelopes served their purpose.
  • How spontaneous can you really be? You should be prepared and have your money by your side if you plan to spend.  It’s harder to spend spontaneously on a cash envelope system, but if you are trying to get out of debt and save money then spontaneous spending might not be the best idea anyway.

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Is it really for you?

Honestly, this is a question that you will have to answer.  If you are wanting to stick to a strict budget and spend less, the cash envelope system very well could be right for you.  I can tell you that our financial awareness changed dramatically when we started this system.  And even though we have been debt free for over a year now, we still take money out each month in cash to help keep us in check.  

I’ve created some FREE printable envelopes just for you!  This freebie has envelopes with inspirational quotes and envelopes to track your spending.  Get it by signing up for the Budgeting Basics Email Course below.  The course also includes information on how to budget, save money, and pay off debt.  This awesome freebie also includes access to my ENTIRE LIBRARY of free resources (seriously, you’ll love it)!

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