Monday, October 13, 2014

Money Monday: The Cash Envelope System

5 years ago, my husband and I decided that we were done using credit cards, and switch to using cash and our debit card.
Our cash envelope wallet. 
We were trying to get out of debt, control our spending, and simply of financial life.
For us, the envelope system means that we use cash to pay for the majority of the things we purchase through out the month.
Here is how our system works:
We withdrawal cash twice a month, on the 1st and 15th. On the first, withdrawal pull cash for the following categories for the month:

Groceries: Self explanatory
Entertainment/Eating Out: Restaurants, concerts, events, ect.
Pet Supplies: Treats, brushes, food, ect.
Dry Cleaning: Self Explanatory
Home Goods: HBA, Cleaning Supplies, Toilet Paper, ect
Gas: Have to keep the tank full
Fun Money: The money my husband and I get to spend however we please.
At the beginning of the month, we put a set amount into each envelope, and that is all we get to spend for that month on that item. (Barring an emergency of course).
We have found that if we are more likely to spend more money when we don’t use cash, so this is a really good technique that we have found to help us stay on or under budget.
For some reason, for us, me especially, when I use plastic, even my debit card, it does not register that I am spending money. But, when I have to pull out those green dollar bills every time I shop, and I see my envelopes getting thinner and thinner, I think twice about what I buy. Which is why I because such a fan of using coupons. 
On the 15th, we do our second withdrawal. This time, the money we pull from our account may not be used on a monthly basis, so we it will continue to grow if not used. At this withdrawal, we pull money for:
Christmas: We save a set amount each month all year, so that when December comes, we get to spoil the people we love presents!
House: This is for house decorating, minor home improvement projects, furniture savings, ect.
Car: For car maintenance like new tires, oil changes, ect,
Fun Money: A second disbursement of blow money for each of us.
My husband and I each get $40.00 a month in fun money to do whatever we want with. ($20.00 every two weeks) This can be used to eat out, buy a purse, buy shoes, buy make up, buy books, well, that’s what I do with my money.
Finally, at the end of the month, we combine all the cash we have left from the first withdrawal, and as a bonus for staying under budget we each get 10% as a little end of month bonus. The rest gets put into our spontaneous fund that we use as spending money when we buy things for a party we host, or extra spending money when we go on vacations out of town, or for a special night out.
Using cash helps us stay on or under budget, and simplifies our end of month account reconciliations, because there is a lot less activity in our checking account.
This system works great for us. For some, it may not be feasible, and may be easier to use some other system. Doing this motivates us to stay disciplined and encourages us to come in under budget each month.

Tell Me: Are you on the envelope system? How does it work for you? How do you budget and track your different expense categories?


Anonymous said...

It's so funny that you mention cash helps you spend more carefully, and I've read that using plastic statistically increases spending, but I so rarely carry cash on me because it makes me spend way more freely! I'd definitely thought about using the envelope method in the past but I just know it's not a good fit for me. Glad you guys have found what works for you though!

Denise said...

you are so organized! what gets me everytime is all the incidentals that occur with having kids...I know we could have an envelope for that too. You are awesome!

Tania @ Run to Radiance said...

I used to do the cash system! It worked really well as long as I forced myself to stick to it and not make a sneaky stop at the ATM! I need to do it again, thanks for sharing your system!

Tracy said...

Cash burns a hole in my pocket! I almost never have cash on me. We use credit cards but we pay them off every month and never carry a balance. I've thought about switching to a cash envelope system but we get so much money back in rewards from using credit cards, it would be hard to say goodbye to that "free" money.

Natalie @ Budget and the Bees said...

You're not the only one I know who uses this system. It's pretty smart really! It's not my preferred way to do things because I actually use my credit card a lot, but it sounds like it works well for you.

Carly said...

I've heard so much about the envelope system but have never really looked into it, so thank you for all of the information!