The Cash Envelope System of Budgeting for Beginners

People usually use their credit cards to shop, travel, and do many other things. When it’s easy to spend money, you end up with a lot of bills at the end of the month. You’ll end up with no money in the bank and a lot of debt, which will result to a mental stress. If this sounds like you, luckily, there’s an easier way to stick to your budget.

The cash envelope system is a game-changer, and I think it’s the best way to get your budget back on track. So, keep watching until the end if you want to know how this system works and what the benefits are. Hi. I’m Kim, and today we’re going to talk about a budgeting system called “Cash Envelope.” As the name suggests, all you need to get started with this system is cash and an envelope.

But to do this, you need to know how it works and what you need to keep in mind when you start the Cash Envelope System.

So , let’s jump right into the question of who should use the cash envelope system. This cash envelope system is great for people who want to stop spending too much money on unnecessary things. Even more so if you have been using credit cards and debit cards. When you spend cash, you are more likely to feel the effects of what you are doing.

People who tend to spend too much with credit and debit cards need to develop this emotional response to spending. So what are the benefits? Many people have found that cash envelopes are a useful tool. You not only have more control over how much you spend, but it’s also easier to stick to your rules.

When all the money is gone, there is nothing left to spend. There are many reasons to start using this budgeting system. Here are some of my favorite benefits:

Allow you to spend Money

Benefit number 1. It allows you to spend money People don’t always stick to their budgets because they are too strict. They always think about not spending money, which is a big change from how they used to handle money.

That’s what’s different about using cash envelopes. You can spend the money in the envelopes, because that’s why it’s there. With cash, it’s easier to keep track of where the money goes each month. At the beginning of the month, all of the money is put into the different envelope categories so you know how much goes to each line item.

This makes you figure out your monthly costs before you spend the money, so you are less likely to spend more than you should. Instead of trying to figure out how to spend your money as you go, your whole paycheck is planned out for you.

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Start your Emergency Saving Account

Benefit number 2. It starts your emergency savings account Now that you know where all your money is going, it’s much easier to open a savings account for emergencies. If you want, you can put away a certain amount each month in an envelope.

As your emergency fund grows, you can move the money to a bank account to start building a strong safety net. When you have an emergency fund, you don’t have to worry as much about money. A small money emergency doesn’t have to be a big deal if you have some cash saved up.

Keep you From Wasting Money

Benefit number 3. It keeps you away from wasting money Part of why the cash envelope system is so popular is that it makes transactions clear. You can figure out where your money is going. Before every purchase, you have to look in your envelopes to make sure you have enough cash.

As your money runs out, you’ll start to question purchases you used to make without thinking. You’ll be much better off financially if you cut out just a few purchases a week. If you don’t waste money, it’s like getting a raise at work. With this system, you’ll buy a lot less stuff you don’t need.

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Keep you Accountable

Benefit number 4. It helps keep you accountable. This method is a great way to remind yourself that you are the only one in charge of how much money you spend. As I said before, when the cash in the envelope runs out, you will be more careful, and this will keep you from overspending in most cases.

The envelope helps you keep track of what you need to do. If there’s no money left in the envelope, you’ve spent all the money you were allowed to for that category. Being responsible with your money will also help you be responsible in other areas of your life. You might eat healthier foods and work out at home to save money and take care of yourself.

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Create a realistic Budget

Benefit number 5. It helps create a realistic budget. If you spend your money without planning, you probably don’t know how much you spend in each budget category. Before I started using this system, I assumed I spent about $200 a month on restaurants and eating out.

This included coffee in the morning, lunch at work, and going out on the weekend. When I sat down and did the math, I was shocked to find that I spent more than $800 a month on eating out. I didn’t keep track of it, so I never knew.

After the shock wore off, I was able to make a budget that made sense. However, if I went straight to $200 a month on eating out I might have failed and given up. Instead, you should figure out where you are now and then work slowly toward your goals. First, set aside $600, then $400, and so on until you reach your goal budget of $200 per month.

You don’t miss payments

Benefit number 6. You don’t miss payments. By making a plan for your money for the month, you can set money aside or pay bills in full. You’re not making up for lost time. Before the cash envelope system can work, recurring bills need to be paid.

You need to know how much money you still have so you can put it in the right envelopes. Since you aren’t using a credit or debit card, you don’t have to worry about losing a receipt or keeping track of them. The money is like a second check.

Even if you forget to write down a purchase, the money is still gone. This is different from electronic transactions, which can take up to two days to post. We’ve already talked about who the cash envelope system is for and what its benefits are.

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Getting Started

Now I’ll share some tips for getting started.

Step 1: Keep track of expenses before you start. Before you start using cash envelopes, it’s a good idea to keep track of your spending for a month. You can keep track of this by looking at your electronic transactions, saving your receipts, or even making a spreadsheet.

Tracking is the first step you need to take to learn about your money habits and where you are in your budgeting.

Step 2: Categorize your Expenses After keeping track of your spending for a few weeks, it’s time to break it down into categories. These are the parts of your budget that you will list. But not every category will turn into a cash envelope. For example, you don’t need to put cash in an envelope if you can pay your utility bills and rent by direct deposit.

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Setting limits

Step 3. Set limits on categories Once you’ve decided how the money will be spent, it’s time to set limits for each category. It is easiest to look at the spreadsheet you made while keeping track of the costs. You may want to keep the same amount of money you spend in some categories but less or more in others.

In general, it takes you three to four months to figure out how much you spend in each category. Don’t worry if you want to change them in the first few months until you find something that works. You can also choose whether you want to get cash for the envelopes every month, every two months, or every week. Depending on how much cash you have, you might not want to have all of your grocery money for the month in cash at once.

Organizing your Envelops

Step 4. Try different ways to organize your envelopes Budget tight? You can put your cash in plain office envelopes. If you have a little more room in your budget, you can choose envelopes that are made for this method. There are even wallets that are made just for cash envelopes. As you work with money more, you’ll learn what to look for in a system.

Don’t Take all of Envelops Everywhere

Step 5. Don’t take all the envelopes everywhere If it makes you nervous to bring all of your envelopes with you, why not leave some at home? If you’re going to the grocery store, you may know that you won’t have to spend any of your money on fun.

For couples, it may make the most sense to keep the main categories of envelopes in one place so that whoever needs them can grab the envelope and put it back when they’re done. So with a little adjustment, you can easily change your spending habits to be more mindful of your purchasing.

Cash envelopes are a simple and cheap way to see and feel how much money you have. Through trial and error, you can easily change this budgeting system to fit your needs. It works for single people, couples, and families, no matter how much money they make, as long as they stick to it.

The Cash Envelope System of Budgeting for Beginners

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