If you spend much time on TikTok or other social media platforms browsing ideas to manage your money, you’ve probably seen the cash stuffing budgeting method trending in popular posts. This buzz-worthy social media topic is just a new name for an old, and effective, way of managing your money using the cash budget envelope system.
When you go to the store and swipe your debit or credit card at the grocery store checkout, you quickly forget just how much you spent. Without thinking about it, It’s easy to add a few items here and there to your purchase. Small purchases made without much planning, may not seem like a big deal. But, over time, small things can add up and wreck your budget.
Relying on cash instead of cards is a perfect way to get a handle on your finances, stay within your budget, and save for the long term. We’ve got some tried and true budget envelope ideas that you’re going to get excited about! Let’s go!
What is the envelope method for saving money?
The envelope method is a budget envelope system where you create envelopes based on your main budget categories. When you get paid, you put your money into those envelopes and take it out when you’re at the store, paying from the appropriate envelope based on what you’re buying.
This process sounds pretty simple, and it’s a great way to give each dollar you earn a job, so your money works for you, not against you. But how does it work, practically speaking? Keep reading!
Do budget envelopes work?
Yes! But the real question is, why? Because it’s visual. You get a handle on your money because you can see where it’s going.
According to financial gurus like Dave Ramsey, it’s one of the most effective ways to get out-of-control spending under control so you can pay off credit card debt and start building your savings account.
With a cash envelope system, you can see what you’re spending. There’s something quite personal about seeing money disappearing that makes it easier to say “no” to impulse purchases. This can train you to stick to your budget. It also forces you to decide how you will (and won’t) spend your money. Many people who use budget envelopes find that they spend less as a result.
Will a budget envelope system work for me?
In short, yes! One of the great things about using a budget envelope system is that it will work for anyone. That being said, that are a few constraints or downsides to this method of financial planning when you’re on the hunt for budget envelope ideas.
First, it only works for cash purchases, such as grocery store purchases. You won’t pay your car payment or student loans by mailing cash to the bank.
Second, having your money in cash form makes it easier to lose money by losing an envelope or a bill or two.
Third, it can be cumbersome to pay when buying items in different budget categories in the same purchase.
Budget Envelope Ideas to Make This System Work
Using an envelope system is a good idea if you’re ready to take control of your money to pay off debt or have money left over at the end of the month. It can help you capture your spending and reach your financial goals. Here are some ideas to help you get started.
1. Start with an Emergency Fund
Before we jump into any other budget envelope ideas, we need to start with the foundation of good money management! If you’ve tried to budget in the past, you know how quickly an emergency can derail your plans. The first step when creating an envelope system is to actually build an emergency fund.
An emergency fund totaling a couple of thousand dollars, before you start working your budget envelopes, gives you a buffer for emergencies. If you have money set aside for unexpected expenses, like a broken dishwasher or furnace that quicks working, you can stick to your different spending categories in your envelope system, even when emergencies happen.
2. Set Up Your Cash Envelope Categories
After building your emergency fund, the next step in setting up an envelope system is to create a personal budget.
For a month, record all of your spending. When you go to the store, keep a budget binder with you, and write down what you spend. When you pay your bills, write them down as well. This is an effective way to get a picture of your monthly spending. Remember to account for fixed expenses, variable expenses, and annual bills so that you can set enough money aside for these.
If you need to start right away, take a look at your bank account or credit card bill. Doing so may give you enough of an idea to create your budget envelopes, knowing that they’ll change slightly as you move through the process.
Look at your spending habits to establish your cash budget categories. Then, decide which ones can become different envelopes. Everyone will have different categories, but some popular ones include:
- Groceries and household supplies
- Restaurants
- Gas
- Medicine
- Toiletries
- Car maintenance
- Personal (fun) spending
- Gifts
- Entertainment
Your own cash envelope system may look different from this, depending on where you like to spend money, but these are common categories to use when you need some budget envelope ideas to get started.
3. Choose Your Envelope System
Now that you’ve got categories in mind, it’s the fun part of choosing some great budget envelope ideas to make your system a reality.
One option is to make your own envelopes. Grab some paper envelopes, and write the categories on the outside of the envelope. Place the cash inside when you get your next paycheck. Put these in a small binder or in your purse, and take them with you when you go shopping.
Another option to use the cash envelope system without paper envelopes is to buy a premade envelope binder system or one of the many cash envelope wallets on the market.
Each of these systems has separate envelopes or pouches to hold your cash. They’re often clear, so you can quickly see how much cash is inside. Some come in different colors to make it easy to see the envelope you need and grab the cash at checkout. Many come with attractive labels, stickers, and budget sheets to make customization easier.
4. Consider a Digital Envelope System
You might be thinking that many places no longer take cash. You might also think carrying large amounts of cash just isn’t practical for you.
Both of these are true, and that makes cash envelopes less appealing. So should you scrap the budget envelope idea altogether? No!
Many paid and free apps and digital cash envelope systems will do the process for you and provide a digital picture of your finances. Each of these systems works a little differently, but here are some good ones to consider:
- Goodbudget – This program allows you to set your own budget categories and manually set the amounts. When you spend, you record the amounts in their appropriate categories, so you can see how much of the “cash” you’ve used.
- Qube Money – This app gives you a debit card that connects to the app. When you want to spend money from a budget category, tell the app, and it will put that amount of money on the card so your purchase goes through.
- Mvelopes – This system connects to your bank account. When you spend money, it records it, and later you can designate which of your virtual envelopes the purchase goes to. Since your checking account connects to the app, it’s easier to remember to log the purchases.
With these systems, you can set up your budget categories and track your spending digitally while still using your debit card to pay for purchases.
5. Make a Plan for Variable Expenses
One thing that can be challenging with cash envelope systems is that sometimes the spending in your budget categories will vary.
For instance, during a month when your kid is in a sports tournament or you have an intense few weeks at work, you may spend more on eating out. Yet the next month, you may only eat out a little because you have more time at home.
So how can you plan when life isn’t consistent?
A key to a cash envelope system is flexibility. While you need to stick within your budget categories as much as possible, you can also be flexible. If you have leftover money in a category at the end of the month, hang onto it in case you need more in that category the following month. If this happens regularly, make adjustments to work your debt repayment plan or add to your savings account.
6. Record Online Purchases
Let’s face it. It’s a lot more convenient to shop online. Not just that, it saves times and money! I’m constantly looking for for daily deals at popular retailers every single day so that I can save the most money on necessities our family needs. If you want to stay in the loop of those sales, come join my Facebook Community!
In this case of online shopping where paying cash isn’t an option, you can record your purchase amounts on the outside of your cash envelope, or keep a piece of paper inside the envelope to track what you spent. Then remove the cash from the envelope that you spent and put it into your bank account at the end of the week or month.
7. Be Smart if You Run Out
What happens if a cash envelope category runs out of money? The tempting thing is to “borrow” money from another envelope, but try not to do this.
The point of the envelope system is to give yourself better control of your finances. If you borrow from different spending categories this month and need the money for a larger purchase in the next, you’re not in any better control than you were before.
If you run out of money in specific categories, slow down your spending for that month. Find creative ways to adjust your spending until the next paycheck. If your spending limits are regularly insufficient month after month, adjust the amounts.
If, after putting together a personal budget and cash envelope system, you still need more, then you know you need to look for ways to increase your monthly income. However, for most household budgets, the envelope system gives them the tools to put their money into different categories, so they can live within the means they have.
8. Work the System Around Your Pay Periods
As you plan your budget system, make sure you plan around your pay periods. If you have a monthly pay period, you’ll pull out the cash at the beginning of the month. If you’re paid weekly, you’ll have to divide your envelope amounts by four. Similarly, if you’re paid twice a month, divide the amount in half.
If many of your fixed expense bills come out at the start of the month, you’ll need to find creative ways to work your envelopes. It may take a couple of months to build up some extra cash in the envelopes to accommodate varied pay periods, but soon you’ll be able to manage with a monthly routine that works for how you’re paid.
9. Know You’ll Make Mistakes (And That’s OK!)
The envelope budget system can give you better control of your money, but you will need to learn how to work with it. As you take each baby step toward better control over your money, know that you will make some mistakes.
When you make a mistake, don’t give up. Start fresh in the next month. Remember, the beginning of each month is a new opportunity to gain control over your spending.
10. Make the Cash Envelope System Work for You
Finally, make your system work for you. All of the budget envelope ideas you find will be slightly different, but at the end of the day, it’s your money. It should work for you, not against you. If a spending category isn’t working, make a change. Use the budget as a guide, not a taskmaster.
Be sure, regardless of our financial struggles, to celebrate your successes both big and small! Remember that this is your journey of financial freedom and every win counts.
A budget envelope system, whether paper or digital, is one of the best ways to get a handle on your spending. You’ll see where your money is going, and you’ll feel empowered to make changes.
Set some financial goals you wish to reach with your new budget goals and plan for a celebration when you meet them. Knowing where your money’s going will lead to success if you make a plan and stick to it. Celebrate that success! Go on a family vacation, plan a splurge for your home, and enjoy the fruit of knowing you are in control of your finances for the long term.
