Looking for a cash envelope system for beginners?
The cash envelope system is a great budgeting method that you can use to take control of your money!
If you don’t know what the cash envelope system is don’t worry, we’ll dig deeper into it soon.
You will see how the cash envelope system can save you $100’s to $1,000’s!
To be honest with you… I am horrible at budgeting! I mean, I know how to do it and how beneficial it is but I’m not very fond of it.
Budgeting can be a really painful and boring task but the cash envelope system is a game-changer!
This method helped me so much with my budgeting and I hope it can help you too.
Let’s dig deeper into the cash envelope system for beginners…
- What Is The Cash Envelope System?
- How To Start A Cash Envelope System For Beginners
- Creating a Budget For the Cash Envelope System
- Filling Your Envelopes
- Digital And Cash Budget
- What About Online Purchases?
- Creating The Envelopes
- How To DIY Your Own Envelopes
What Is The Cash Envelope System?
A cash envelope system is a budgeting method where you put a set amount of cash into envelopes for different types of spending you do.
For example, you can have an envelope for eating out and then put $50 in it for the week. Once you spend that $50 on eating out, that’s it!
The whole premise of the system is to feel the pain of seeing cash leaving your hands.
In fact, it has been proven psychologically, that it hurts more to spend cash than it is to spend with a debit or credit card.
With credit cards, Apply Pay, or mobile apps, there’s no pain involved. In fact, it’s way too easy, you can just swipe, tap, or use fingerprint ID to keep charging away.
So, with cash, you are more aware of how much you are spending and what you are spending the most of your money on.
With a cash envelope system for beginners, you will learn how to budget easily!
I recently implemented the cash envelope system and I am already starting to see results. It’s also a lot of fun!
Being on a limited budget and a cash one forces you to get creative. And who wouldn’t love being creative all the time?
However, one thing to note if you choose to use the cash envelope system is that you will no longer earn cashback or other rewards when using a credit card or debit card.
But… with the cash envelope system, you will most likely save more money than you are getting in cashback so it turns out to be better.
Some people rather use jars instead of envelopes which work the same but I rather envelopes since they are easier to carry around.
The downsides to the cash envelope system are that you will always need cash on hand, so you better hit up the bank and since you are using physical cash you have to be careful not to lose your money.
The cash envelope system is really simple, all you need is cash and envelopes, that’s pretty much it!
How To Start A Cash Envelope System For Beginners
Now that you know what the cash envelope system is, how do you start it?
Well… it’s pretty easy!
All you need is cash which you can withdraw from the bank and have some envelopes and that’s it!
You will then label the envelopes with different categories of spending and then decide how much money you are willing to spend in each category and load up your envelopes.
The envelopes can be filled with a weekly budget or a monthly budget. I recommend a weekly budget so you don’t have so much cash at one time laying around.
If you struggle with debt I recommend using cash instead of credit cards to manage your money.
The cash envelope system kicks it old school and goes back to basics by just using cash and feeling the pain when you are spending your money.
It’s a really simple system to implement so definitely consider it if you are looking for a cash envelope system for beginners.
Let’s dig deeper into this…
Creating a Budget For the Cash Envelope System
The best way to determine a budget for your cash envelope system is to look at your spending for the last few months and see what are you spending on.
Then list all the spending that was on needs (i.e. internet bill, car insurance, etc.) and list them.
After you focus on your needs, then list out all the things you spent on that are classified as wants or miscellaneous spending.
For example, you can separate monthly bills from regular spending and wants.
Filling Your Envelopes
Now that you have your budget and the categories for your envelopes it’s time to get some cash into them.
If you’re paid bi-weekly, you’ll be making two withdrawals a month. You’ll add up your cash items in your budget and that’s the monthly amount.
For example, this can be $500. You can withdraw $300 on the first pay of the month and $200 on the last pay. Then, stuff the envelopes according to what you budgeted.
Digital And Cash Budget
The key to a successful budget is figuring out what works for your specific needs.
What if your bills are auto-billed to your credit card? Do you have to switch those to cash?
The simple answer: No!
Because those are fixed expenses and rarely change, it’s okay to keep those bills on your credit cards.
Items such as Internet, Car Insurance, Mobile Phone usually are billed to cards.
The idea is to stop your discretionary spending (shopping, entertainment, eating out) from going on your cards, that’s what causes the most damage.
Just remember to set aside money to pay your card each month to cover your monthly bills.
If you believe that even having your monthly bills on your credit cards will test your discipline, then pay from your account or use debit. You have to practice extreme discipline to stick with your budget.
What About Online Purchases?
Ah yes, nothing like online orders to throw a kink in the cash only system.
I would highly recommend avoiding this altogether but some household items are cheaper when purchased online.
Again, practice extreme discipline!
Let’s do an example:
If you have $50 in your household budget envelope and you purchase filters for your water pitcher online for $44, whether you pay with your debit card or credit card, you must take $44 from the household envelope and deposit it back into your bank account.
Then enter this transaction in your spending tracker.
Make sure to pay your credit card the $44 from your bank account if you paid that way.
It can be annoying to do this but don’t let this deter you from the cash envelope system!
Creating The Envelopes
Once you’ve figured out your budget and created your categories for your envelopes, it’s time to put together your cash system envelopes.
As I mentioned before you can use plain envelopes and just write on them but you have to make sure that the envelopes are the right size to hold your cash.
The bill size is different depending on the currency you use so just make sure you are using the right envelope size for your currency.
You can then design the envelopes to your liking to make it a fun project which I recommend doing.
Many people find it to be more motivating to use if it was cheerful.
Yes, you can purchase pre-made cash envelopes on sites like Etsy but when you put the work in to create your own envelopes it will make you feel more connected to your budget.
Design your cash envelopes to your liking and just have fun with them! It’s also a fun project you can do with your kids if you have any.
Also, it’s a great idea to have a bag to store all your envelopes in before you lose them!
How To DIY Your Own Envelopes
If you don’t want to buy and use blank envelopes, you can actually make your own.
Let’s check this out…
Firstly, you will need certain materials to use when creating your envelopes. You can see the materials list below:
Total Time Needed :
Here are some frequently asked questions about the cash envelope system for beginners…
Yes, the cash envelope system works by limiting your spending and using the psychological principle on the Pain Of Paying.
The cash envelope system works by forcing you to budget your spending using cash. This way you are limited to the cash you have in the envelope not digits in a bank account or credit limit.
Cash envelopes are used to hold cash for different categories of spending such as bills, food, rent, etc… It’s a budgeting method that will help you control your spending.
What to do with leftover cash from cash envelopes depends entirely on your financial situation. You can put it towards your emergency fund or savings, pay off debt, or treat yourself to something.
The number of cash envelopes you need depends on your spending habits. The basic categories are rent/mortgage, food, and bills but there are others you might have that other people don’t. So, track your spending and do your best to categorize each type of expense to use with a cash envelope.
Is the cash envelope system for everyone? No, it’s not a perfect system and it doesn’t fit everyone’s lifestyle but it’s a great way to budget if you are struggling.
Going cash only is the only way to learn to stick to a budget. When you ditch credit cards, you can’t go over budget.
There’s no way for you to spend more than you make. When the money in the envelopes is gone, that’s it, you can’t buy anything else.
This is why the cash envelope system works so well!
Cash is harder to spend and it runs out so when you run out of cash then you’re out. No more swiping your card
If you want to start a successful cash envelope system here are some key points:
- Go cash-only and ditch the cards
- Understand your money strengths and weaknesses
- Create a budget
- Track your spending, debt repayment, and goals
By doing this you will achieve financial freedom, have less stress, get rid of painful financial anxiety, and live a much simpler life.
What do you think about this cash envelope system for beginners? Have you tried this before? Let me know in the comments below!