I have been using the cash envelope system since September 2018 and it has not failed me yet. I discovered the cash envelope system on YouTube when I saw so many people use it as a way to track their spending and savings.
But what is the cash envelope system?
The cash envelope system is simply a way to divide your spending into different categories. These categories can be anything that allows you to pay for things in cash. For example I only use 3 cash envelopes for my spending, these include:
- Spending (Dates, days out etc)
- Food (Meal prep, eating out etc)
All of these I can pay in cash with. For me the cash envelope system is a visual reminder of how much money I spend. When I used to pay with my debit card I took it for granted and didn’t think much about what I was spending. It wasn’t until I had my bank statements through I realised that my money is going nowhere, I was wasting it.
From that day on, every month I budget an amount for each envelope and do not change this, unless there is an event or something that requires more money.
Here is an example of much I budget for each envelope:
- Spending: £100
- Food: £80
- Petrol: £60
The only way the cash envelope system is going to work is if you have a budget in place. If you just make up numbers and do not follow a budget this system will not work, the whole point of this system is to keep you accountable for your spending.
Here are my rules for using the Cash Envelope System:
- You need a budget!
Plan your budget before you even think of using this system. You need to figure out how much you are going to need in each envelope. I did a practise month to see if what I was putting in my envelopes was enough money or too much money. The first month I done this I did not put enough money in my petrol envelope which meant I had to borrow from my other envelopes!
- Create your Cash envelopes.
At the moment I only use normal white postal envelopes as it’s easier for me. However, there are many websites that have cash envelopes, the best one is Esty (https://www.etsy.com/uk/market/cash_envelope). There are hundreds of amazing designs that you can choose from.
- What are you going to use your cash envelopes for?
You need to decide what you are going to use your envelopes for. Are you just going to have some to track your spending? Or create ones for your bills? I personally only use cash envelopes to track my spending and also to save money for various events throughout the year. I keep money in my bank account for all my bills as for me it doesn’t make sense to draw the cash out to put it back into my account before the direct debit is due. But the decision is yours!
- Do not borrow from other envelopes!
This is a major rule! You cannot borrow from other envelopes. For example if you are getting low on your spending envelope you can’t take money out of your food envelope. The whole point of this system is to make you aware of your spending. So if you’re running out of money from a certain envelope then you need to either budget yourself more money or find a way to cut your spending for that category. For the first few months you try this you will make mistakes. But stick with it, believe me it’s all worth it.
- Keep track of your cash spending.
For me this is another important rule, I have created a spending tracker that keeps me accountable for all my cash spending. (See picture bellow) This keeps me motivated every month as it makes me realise how much I am spending. I recommend that you do this as well.
I hope that these tips have inspired you start the cash envelope system. I cant recommend it enough, it will take a bit of work but it is so worth it.
Since starting the cash envelope system I have saved so much money, it has made a massive difference to my fiances and I couldn’t be happier.
So if your like me, someone who struggles keeping track of their spending, who needs to be on a strict budget, then the cash envelope system is for you.
Please let me know if you any questions in the comments below and I would be happy to answer them as best as I can.
Below are some links to websites and videos that have helped me understand the cash envelope system.
Pennies into Pearls: http://www.penniesintopearls.com/beginners-guide-cash-envelope-system/
Alyssa Herbert: https://youtu.be/nME9Ei1Ne7U
That is all for now! Talk to you soon 🙂
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