Budgeting is simple. Trust me, it totally is! It may seem rough at first, but the budget isn’t the difficult part of getting your money under control. The hard part is modifying your own behavior to align with what your budget is telling you to do.
One of the keys to sticking to a budget and paying off debt is doing exactly what your budget says to do (Bonus: you make your budget so it is just you telling yourself what to do).
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In life today, we all just use our debit cards for everything. I seriously never have cash on me because carrying my card is just easier. Throughout the month, it is so tempting to just swipe your card and not pay attention to your spending, but then you end up over budget, frustrated and defeated. This usually leads to you quitting budgeting altogether because “it didn’t work.”
If you are a follower of Dave Ramsey, he recommends using a cash envelope system to keep your spending in check. Tons of people attribute their success to using these envelopes. When he asks them what the secret is to get out of debt, the most common answer is the budget and envelope system.
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What is the envelope system?
The concept is, you take out the amount of cash you want to spend in each cash category for the month and keep it in a specific envelope. You carry those envelopes with you and use that cash for the intended purchases. When the money is gone; it’s gone.
Common cash envelope categories:
- Groceries
- Restaurants
- Clothes
- Entertainment
- Car repairs
- Child Care
- Toiletries
- Cosmetics
- Fun Money
Behavior training happens when you run out of money. If there is no cash left in the envelope, you are done spending money that month. Period.
The envelope system absolutely works! But, I ran into a problem where it was too difficult for me to get cash out every month. So I modified the system a bit to fit my lifestyle and came up with a Cashless Envelope System that works beautifully!
Why is a cashless envelope system okay?
If you run into the difficulties of your bank being far away like it was for me, getting cash out every month may be a challenge. If you are uncomfortable carrying cash on you throughout the month that’s okay. This is also a real fear of getting robbed and then you are just out of luck for some of your needed expenses for the month.
There is a psychology to using cash to make purchases (it feels painful to us) versus just swiping our card (no emotional consequence for us). BUT, there is a way to make the cashless envelope system feel the same way as using cash.
Using the cash envelope system without cash will still allow your spending to be visible and tangible. You will still feel like you have spent money even though you are using your debit card.
The other bonus to this system is if you are married, you don’t need to fight over the cash with your spouse. You both can have access to the envelope (share via pictures) and make purchases if needed. You don’t have to worry about who needs what envelope on which day.
This envelope system is also helpful for online purchases. So much of our shopping is done online now, so this is a great way to still use the cash envelopes, but not have any added stress to your life trying to do this perfectly with cash. Use the cashless envelope system and make your online purchases with ease.
Pro tip: I have been doing this for years and it works!! This can definitely work for you too!
How to use the Cash Envelope System without Cash:
Create your budget.
Every month you should be creating a new budget because your expenses are going to change from month to month. You need to decide which categories are going to be your cash envelope categories.
Then you are going to name an envelope for each category. This envelope is going to have two functions for you.
- You can hold the receipt from the purchase within the envelope in case you are in a hurry at the store and need to write the purchase later in the day.
- You will keep track of your spending within the envelope on a lovely index card!
Determine your cash categories amounts.
For each of the categories, you intend to use the cash envelopes for, you need to determine the budgeted amount for the month.
On the outside of the envelope or on the top of an index card, write the budgeted total for the month. This is your starting amount you will then subtract your purchases from.
You will then keep these envelopes with you at all times so you know exactly where you are at for the month. No impulse spending because you “think” you have enough room in that category. You are going to be able to look in your wallet and know exactly how much money you have available. No guessing.
Track your spending.
This is magic. Let’s say you are in a restaurant and you have paid for dinner using your card. We know you aren’t going to feel that psychological pain of using cash, but you can still make yourself very aware of your spending.
The second you get that receipt back with your total, get out your restaurant envelope and subtract the total from your budgeted amount. The physical act of doing this will alert your brain to the transaction. You will then have a newly updated amount in your head for how much you have left to spend in the month.
This is just as effective as using cash as long as you actually use it.
Where you could get into trouble.
If you decide to just use your envelopes to collect receipts, you are going to get into trouble. The point of these envelopes is to track your spending the very second the transaction happens. You need to be on top of your envelope budget, AS IF, you were actually using cash and it was disappearing from your envelope.
If you go out, make purchases, put the receipts in your envelope and calculate your running total a few days later; chances are, you are going to be over budget. You have to pay close attention to your envelope, otherwise, it is not going to work.
When the money is gone, you’re done.
Throughout the month, as you track your spending for each envelope when the money is gone; you are done. There is no continued swiping of your card beyond what you told yourself to do within your envelope.
This is how you will change your behavior, stick to your budget and pay off debt. You give yourself guidelines and instructions with your budget. Your job is then to follow it.
If the cash envelope system stresses you out, you should definitely give the cashless envelope system a try! This is simple, effective and you can use your envelopes again and again!
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THIS is what I’ve been trying to figure out how to do! I don’t use cash, but I NEED to track my expenses. I need it in front of me on paper not an app on my phone. I have piles of receipts but never end up doing anything with them. This seems so simple yet exactly what will help train me to track and not go over my budget. Thank you!
I have done something similar on excel and I update it daily so I know what is in our budget for each category for that day. I haven’t gone as far as putting it on my phone to update in real time but I could. It has helped us save and pay down debt. We don’t follow all that Dave teaches as we are not in a huge rush, but the goal is still the same. But a budget and sticking to it has been the key to doing this.
Thank you for this – great system! It accomodates the fact that many of us do not want to use cash because we would lose out on credit card airline miles or cash back rewards. I have saved a few thousand dollars over the years thanks to cc rewards. Newly retired, I have a much tighter budget so need to be more watchful, but I also need those rewards more than ever. Of course, if our budget ever gets so tight we may not be able to pay off the credit card balance each month, then we will go back to cash. Credit card interest cost way more than what we get in cc rewards!