How To Start The Cash Envelope Budgeting System

The cash envelope budgeting method can help you track how much money you have in each budget category for the month by keeping the cash tucked away.

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The envelope budgeting system is a smart system to help people save money and get the bills paid. It can help people set aside money for bills while still having a budget in place.

Do you wonder at the end of the month where you have spent your money?

If yes, most likely, you don’t have a proper budgeting plan in place and aren’t able to accurately track your expenses and income.

You’re not alone though, CareerBuilder found that 78% of workers are living paycheck to paycheck.

If you could benefit from a new envelope budgeting method to help you get the bills paid then the envelope budgeting system can help you get your finances back on track.

How to Use the Envelope Budgeting Method

A realistic budget helps you to create a proper spending plan. So, if you can stick to it, you will be able to stop overspending. Besides, you can track where you are spending your money! Eventually, with time, you can start saving money as well! In short, it can help you to live within your means!

Well, if you search, you may come across various types of budgeting methods! But trust me, if you don’t have a proper spending plan and want to get a grip on your finances, an envelope budget can be the best bet for you!

An envelope budget might seem outdated to you. I mean, when you can plan your budget just with the help of your smartphone, then why do you need envelopes to budget? Why do you need to set up the envelope budgeting system?

Here are some of the reasons:

Most of the people end up overspending because they don’t have a proper spending plan! And they can’t track where they are spending their dollars. Eventually, at the end of the month, they won’t be able to find out what is the total expense and all. But the envelope budgeting method helps you to provide a visual representation of your spending habits. And it can help you to track your expenses too!

So, if you can stick to your envelope budget, hopefully, there will be no chance of overspending. This budgeting method encourages you to use cash for your discretionary expenses! And let me tell you, a study reveals that using cash can actually help you save more bucks than paying by credit cards!

The reason being, while swiping your credit cards, you are not aware of your financial limitations. And usually, the credit limit for credit cards is a bit higher than your paycheck (depends on your creditworthiness). So, you might think that you have more money than you actually possess.

You will come out of smoke and mirrors when you will receive your credit card statement. By that time, you might overspend and generate an incessantly high outstanding balance amount!

But if you carry cash, you know how much money you have to spend. So, even if you want to overspend, you can’t!

After hearing all these, you might be damn excited to start the envelope budgeting system soon! But how will you do that?

Well, setting up the envelope budgeting method is pretty simple! Here are some of the best possible tips to start your envelope budget successfully!

Step 1. Plan your budget

The baby step to set up the envelope budgeting system is planning a budget first! By doing so, you can allocate funds for your different expenses.

So, sit down in the most comfortable space at your home with a pen and paper. List all your expenses along with your monthly income from all sources.

Some of your expenses might be to pay off your mortgage loan or rent, utility bills, insurance policies, etc.

For these expenses, you can switch to autopay! In doing so, the funds will be automatically transferred from your account. And you won’t have to worry about missing deadlines for payments!

Besides, you will have some variable expenses on some categories like:

  •       Transport or fuel
  •       Entertainment (like dining out, going out for a movie, etc.)
  •       Groceries
  •       Household goods

These are some of the common variable expenses that I have listed. You may have some other expenses too! If so, then you need to list that in the variable expenses category!

Step 2. Withdraw the necessary cash

As we discussed, you need to put in cash in the different envelopes for your different expenses. So, you need to withdraw the necessary amount of cash at the beginning of the month.

While planning your budget, you are allocating funds for different expenses. And thereby, you can get a rough idea of how much cash you will need!

By the way, are you planning to withdraw cash from the ATM?

If yes, I would suggest you check the maximum daily withdrawal limit of your bank! And if you are going to the ATM to withdraw cash, use your bank-owned or affiliated ATM. This way, you can stay away from shelling out transaction fees at a non-network ATM.

Otherwise, you can visit a branch and withdraw the necessary amount!

Step 3. Create envelopes for each category

Now, based on your list of discretionary expenses, you know how many envelopes you need! While chalking out your budget, you have already decided how much money you will allocate for each of these expenses.

So, based on that, put in cash in each of the envelopes and write the total amount on it.

Let’s say, you have $1,500 for your variable expenses. Based on your budget, you have allocated:

  •       $200 for transport or fuel envelope
  •       $400 for entertainment envelope
  •       $600 for groceries envelope
  •       $300 for household items envelope

So, whenever you need to spend, take out money from that specific envelope. And as I said, write the remaining amount on the back of the envelope.

Besides, make sure that you are taking out cash from the right envelope. For example, if you are taking out cash for entertainment expenses, it should be from that envelope only!

The Benefits of Envelope Budgeting

Now, you are all set to implement the envelope budgeting method for your financial life! If you can stick to it, you can reap the benefits, like: 

It can help you to track your expenses

Every time you are spending money on a category, write down the remaining dollars on the back of the envelope! Also, write down the date along with it.

It will help you to track how much money you are spending on that category. At the end of the month, you can have a look at the envelope. And check if any dollar is left.

Eventually, you can calculate your expenses in each category. And thereby, you can calculate your total expenses in a month too!

You can stay away from overspending

If you run out of money in an envelope, that means you are overspending in that category! At this point, you might think to take out money from another envelope! Or, you might plan to use your credit cards for the expenses!

But please don’t do that! It might become your habit that if you run out of money in an envelope, you can take out money from another one or swiping your credit card! In short, there will be no reason for budgeting!

So, wait for your next paycheck date. And from the next time, make sure that you are not overspending in that category! I know that it might be tough for you to stick to this! But trust me, buddy, to make the most of the envelope budget, you have to do this.

You can utilize the remaining money for your good

At times, it might happen that you have saved some dollars in a particular envelope. And that’s really good, pal! In that case, you can  do the following things:

  • You can stash that money into your savings account. But I would suggest you opt for a high-yielding savings account. Usually, these accounts are offered by online banks like Ally, Chime, etc. And they offer slightly higher interest rates than the brick-and-mortar banks. So, if you stash your money in the high-yielding savings accounts, you can earn relatively more interest! 
  • If you have any debts to pay off, you can utilize that money! Having debts can be an obstacle for you to save money! Because, most likely, you need to dedicate a substantial amount of money to pay off your debts. So, eventually, you will be left with fewer funds. That’s why you need to find some genuine debt solutions and lead a debt-free life ahead! If you have any remaining dollars left in an envelope, you can dedicate that money to pay off your debts! Trust me, once you get rid of your debts, you will be able to save more money! 

Well, you can save money for your emergency fund too! See, life is full of uncertainty. Anything can happen at any moment of our lives!

So, we need to be prepared to face any kind of exigency. And if you become financially prepared, it will be relatively easier to deal with any exigency.

That’s why you can stash some dollars every month in your emergency fund. Financial advisors often say that you need to have a rainy day fund consisting of your expenses of 6 months.

But you can start with a small amount of money. And with time, you can build a substantial amount of emergency funds! 

Well, most of the things in our lives have pros and cons too! No doubt, the envelope budgeting system has ample benefits. But it has some downsides too, like:

  • In the envelope budgeting system, you have to keep cash in the envelopes. So, carrying an envelope full of cash can make you vulnerable to theft. Or, you might lose some of the cash or the whole envelope. To avoid these problems, you can take a part of the cash from the envelope while going out. For that, before going out, make a rough idea of how much money you might need to spend. 
  • By using cash for your expenses, you might miss the cashback offers or reward points offered by credit cards. But in the envelope budgeting system, you don’t need to use credit cards! As I said, using credit cards can intrigue you to spend more. So, use cash as much as possible and refrain from overspending.

 So, always remember, to master the envelope budget, you have to spend what’s there inside an envelope! You can’t spend more! And if you have cash left in an envelope, that’s great! It means you are saving money! And if you run out of cash in an envelope, you need to be alert!

So, the bottom line is, initially, the envelope budgeting method can be a bit tough for you. But once you get obsessed with it, trust me, you will have finances under control. And you can lead a financially stable life ahead!

PBCL Staff
PerfectBadCreditLoans.com is the authority on bad credit, featuring daily articles, studies, guides, reviews and other resources for people with poor credit ratings.

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