How to Use the Cash Envelope System to Curb Waste
Some parts of the budget are easy to set up and stick to. Your rent will not fluctuate. Your gym membership is probably a predictable amount. You have a general idea of how much gas you will need to buy to travel back and forth to operate during this pay period.
But where these fixed and predictable costs can make you feel like you’ve beat your budget, more flexible categories can ruin the entire system you’ve built. You said you were going to spend $ 50 on clothes this month, so why are there so many H&M bags in the hallway? Your friend’s birthday dinner should have been modest until someone ordered three snacks and a bottle of wine on the table and said, “Let’s just split it up guys.”
When your budget is running low, you can take the time to ponder, tweak, and try again next month — that’s the beauty of your budget as a living document. But if you’re looking for an extra boost in self-control, ditch the old school and try a money envelope budgeting system.
The envelope system isn’t just something my mom practiced in the 90s! The budget management method was popularized by financial guru Dave Ramsey . I don’t like everything Ramsey preaches, but I admit that some of his tactics for controlling your spending are reliable.
How to use the money envelope system
The first step in setting up a cash envelope system is to define your monthly budget. You can decide which method works for you and how much money to spend on various aspects of your life. Don’t look at your neighbor’s newspaper. This is your own unique budget. There are no wrong answers.
Then select the categories you want to track or contain your spending in. Maybe you’re too happy with ‘add to cart’ when it comes to online spending. Maybe you felt very generous during the holidays, but your generosity ends up giving you a credit card hangover.
Popular categories for converting to cash envelopes include groceries, gifts, entertainment, and dining out. You set the amount of cash that you put in an envelope at the beginning of the month before you shop with that amount of money.
When you have no money, you’re out of luck. Don’t go through Go, don’t hit the ATM anymore, don’t steal from other envelopes. You have finished for a month. You need to wait until the calendar flips to get new money and refill your envelopes.
When it comes to your trading instruments, Ramsey sells a line of products to help organize your money. But you don’t need to spend $ 14.99 or more (plus shipping) on a fancy fake checkbook. You can use plain old envelopes with categories on the front. Every time you make a purchase, write the amount on an envelope or put a receipt inside.
This is not a PSA for waving large sums of cash. How much you take with you will depend on the budget you set. And if you think the envelope is too bright for your day-to-day comings and goings, clip the notes for each category together with a paperclip inside your wallet along with a tag that identifies the category.
Here’s an example of an envelope system in practice: you walk out the door to the cinema. you can bring an envelope or cut-out bills for “entertainment”. If it’s full, then you and your date can get every single popcorn. If not – Rest in Life Moviepass! – Maybe you should put some snacks in your pockets before leaving the house. The envelope rules everything!
The envelope system works because it hurts
When I meet friends at a bar, I often arrive first because I have a lot of time. I might be halfway to a glass of wine when my friend arrives, and by that time I’m the feeble-minded and generous Miss Moneybags. “Oh, I have a tab open!” I will tell. “Just put it on my account!” Thirty-four dollars and three hours later our happy hour was over. And that’s okay until I look back a month and figure out how much I wasted during happy hours.
Instead, I grabbed $ 20 on my way out of my larger envelope of bars and restaurants, which I extend even longer when I leave the house. Instead of keeping obscure bookmarks at the bar, I order a drink. The bartender gives me a drink and names the cost. I give them some money and they give me change. Now I can see how much I have left in my budget for this night.
The envelope system works because it’s not fun. Touching money and handing it over to the cashier harms your brain and soul far more than other forms of payment. It won’t stop you from making every purchase, but the need for cash can help curb the urge to spend more money than you expect. Nobody wants to be faced with an empty envelope with many months left in it.
What about online shopping?
Those food kits delivered to you automatically send dog food, cheap pants that you buy on eBay. You can name a million reasons why “credit cards are better than cash, and besides, you can’t use cash on the Internet!”
So maybe this method is not for you. Or maybe it’s for you, but only in a few specific categories: trendy coffee, houseplants, sneakers, yard sales. If unsubscribing from Old Navy regular emails is enough to keep you away from impulsive online purchases, maybe cash envelopes can help you take it one step further.
After all, Uncle Dave’s thesis about this budget system is correct: “The envelope system works because it forces you to purposefully determine where and how you spend your money.” All it costs you is a few envelopes, and if you reuse the ones that received junk mail, you save on envelopes as well.
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