The cash envelope system is a budgeting method that helps people stay mindful of their spending and take control of their finances.
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Are you looking for ways to spend less, save more and stick to your budget?
The cash envelope system is a budgeting method that helps people stay mindful of their spending and take control of their finances. It involves dividing your paycheck up into different envelopes, each labeled with a different category of expense such as dining out, groceries, gas or entertainment.
When you need to purchase something, you take the appropriate amount of cash out of the corresponding envelope. This prevents you from overspending since you can only spend the money you have allocated for a particular category.
This system will come in handy especially during the holiday season when everyone is strapped for cash and is on the spending spree.
Benefits of using the Cash Envelope System
Cash Envelope System is very effective if used appropriately every month by every family member. This system:
- Has been found to be effective way to manage finances;
- Allows to keep track of spending and staying within budget;
- Helps people avoid building up too much debt, since it relies on cash rather than credit cards;
- Helps families stay on track financially and avoid overspending or impulse buying;
- Is fully customizable and fits into any lifestyle;
- Helps start saving right away by cutting back on spending in certain categories like eating out or entertainment;
- Helps pay off debt faster and save more money for emergencies;
- Teach kids the concept of saving money by managing their envelopes;
- Will make you feel more organized and financially responsible.
How to use Cash Envelope System?
Cash Envelope System is extremely easy to set up and use. You need a few envelopes that you can use to put money away.
You can use a regular envelope or download and print these free printable labels to make your own envelopes.
Add a number of categories on few envelopes for that month. For example, Dining Out, Groceries, Clothing, Entertainment etc.
Decide and place the money in each envelope.
So, if you placed $250 in Dining Out envelope, you spend the money from that particular envelope next time when you go out to eat.
Spend as much as you want but make sure that you do NOT spend more than $250 if that’s what you allotted to that category.
Similarly, if you placed $150 in your clothing or entertainment, you make sure that you do not spend a dime over that $150.
What happens if the envelope is empty?
If you find your envelope empty with no more money to spend, STOP right there. No more spending on that category anymore.
No borrowing from another envelope. You start again from your next income and start spending again, but not until you get your next paycheck.
If there is an unavoidable emergency, and you do have to spend extra, make sure to discuss with your family and take further action.
What categories should be included?
Main categories for a common household could be groceries, gas, dining out, clothing, entertainment.
Make sure to list the categories that usually bust your budget every month and that you can actually control.
These printable labels have Category, Where and Amount.
When using the Cash Envelope System, you can control the number of times you are going to the grocery store to buy groceries, or if you are over using the gas or spending too much on clothing.
You can reduce the number of trips to the grocery store if you find out that your “gas” envelope is running out of money faster.
Make sure to check out more ways to lower your grocery bills and save money.
If you would like to try Cash Envelope System for your family, here are a few simple steps you can start with. Let’s start with preparing your envelopes.
Download these labels, print them and cut out with the scissors. Follow the steps to make these cute envelopes.
How to Stick to your budget with this System?
#1. Set Up Your Budget
Although this is the very first step, but many of us find ourselves stuck right here. How do you decide the budget for each category.
Well, I use this handy budget and finance planner that can help me keep your finances in check. Take an average for 3 or 4 months and decide on a budget.
#2. Write Down Your Categories
Write down your main categories in your household like gas, dining out, entertainment, clothing.
#3. Place Money In The Envelopes
Once you allot the amount for each category, place the money in each envelope. You can allocate something like $100 to your dining out category. So, place your $100 in that envelope.
#4. Start Spending From Those Envelopes
So the fun part begins. Once the envelopes are labeled and funded, you can go ahead and start spending. Make sure that you stay within your budget.
If you end up emptying the envelopes, you are not spending in that category anymore. If you are left with some cash or change, AWESOME! Way to go!
You are well on your way to saving money and disciplining yourself from overspending.
#5. Do Not Forget To Mark Down The Amount
When you spend an amount on groceries or gas, do not forget to fill up the label on the envelope.
Write down the date, where you spent, how much and the remaining balance.
That way, you will have the exact record of where your money is being spent.
Cash Envelope System can be a powerful way to spend your money and staying within your budget. Try it for a few months and you will feel the difference.
This system is simple, efficient and you can use it for various purposes. You can also customize it to suit your own needs. If you are looking for a way to get your finances in order, I highly suggest giving the cash envelope system a try!