How The Cash Envelopes System Can Save You More Money

by Mar 17, 20221 comment

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Do you remember Toni Braxton? Her song, Unbreak My Heart, was a phenomenon, and no 90’s R&B playlist is complete without it. Unfortunately, she wasn’t actually getting paid much from her record label. Despite this, she overindulged in her home decor hobby and ended up filing her first bankruptcy because of it. Even successful people can fall victim to overspending, but there’s something they can do to prevent themselves from doing it. It’s not just budgeting, but a practice called the cash envelopes system.

What is the cash envelopes system?

The cash envelopes system is a way to prevent yourself from spending more than what you’ve budgeted. It’s called this because you have to keep all the budgeted money in an envelope or wallet.

To do this, you need to identify which budget categories you’re likely to overspend in and then withdraw that money in cash. Typically, this is just the self-care budget, but I also do this for my groceries and vacation fund. How long you should make this last will depend on how often you get paid. For most people, that should be about two weeks. Then, limit yourself to only spending that cash. If you run out of cash, then you’re not allowed to withdraw any more money until your next payday. 

Five main benefits of the cash envelopes system

You might think it’s too simple to be effective, but it works! To back that up, here are five benefits you will feel when using the cash envelopes system:

1. You stop overspending

When withdrawing money from your bank account takes just a few seconds, it can be very easy to overspend. However, if you have to make an effort to go to the ATM, then you’ll feel a lot less inclined to withdraw. This won’t stop overspending entirely, but because it’s such a hassle, you’ll find yourself doing it much less.

2. You start to learn what you can live without

With debit cards and e-wallets, spending money unnecessarily can be very easy. Transactions are so much faster when you just type in your info or press a few buttons. It can be easy to get carried away because of how fast these transactions are.

But with cash, you start to be more intentional with how you spend. This is because paying for everything in cash comes with annoyances, like carrying a lot of spare change. Because of how inconvenient it is, you only end up buying things that are worth the hassle.

3. It helps you feel less guilty about spending on yourself

The cash envelopes system lets you visualize how much money you’re allowed to spend on yourself. Because it’s budgeted, you’ll find yourself feeling less guilty about your purchases.

4. You feel the impact of spending money

Another benefit that the cash envelopes system brings is that spending feels more impactful. When you’re only spending cash on hand, you can see the money leaving your wallet. When there’s a visual repercussion, like an empty wallet, for spending, you tend to do it less.

5. Your money will last longer

When I first started using the cash envelopes system, I spent much less for the reasons listed above. It helped me stretch my self-care budget, and I would end up with extra savings at the end of the month.

If you’re interested in finding more ways to save money, check out my article for some tips.

Seven steps to getting started with the cash envelopes system

I doubted that the system would do anything, but after experiencing it myself, I have to say it works! If you want to start using the cash envelopes system yourself, then follow these seven steps:

1. Start with a budget

The first step to the cash envelopes system is to make a budget. By budgeting your wants, you’ll be able to see how much money you can spend.

If you don’t already have a budget, you can use the popular 50-30-20 budget. It’s called this because you allot 50% of your income to the necessities, 30% to wants, and 20% to savings.

My article on the topic can help you make a more personal budget if you’re interested.

2. Withdraw the correct categories

When following the cash envelopes system, you’re not withdrawing all of the money from your bank account. You’re only withdrawing your “self-care” fund, which is for buying things you want but don’t need. Additionally, I do recommend withdrawing your grocery budget as well.

If you’re following the 50-30-20 budget, it’s as easy as withdrawing 30% of your income. But make sure to…

3. Take only what you need

You must take only the amount you’ve budgeted. Withdrawing any more than you need entirely defeats the purpose of the cash envelopes system.

4. Separate them accordingly

This step is somewhat optional. You’ll already know what you want to buy for that month. It’s good practice to separate what you’re already going to spend from your untouched cash.

Additionally, if you have two envelopes (e.g., one for groceries and another for wants), make sure they’re distinct. You wouldn’t want to get them mixed up!

5. Make it last

Every step up until this one has been relatively easy, but these next three can be quite a challenge.

You need to fit everything you want into that budget. However, it can be challenging to make a lump sum last. I know a few ways to stretch your money. Check out my article on the topic for more.

6. Don’t withdraw until the next payday

This step requires a lot of self-control. When starting this new system, you may find that you don’t actually have enough money for everything you want. You have to resist the temptation to withdraw more money no matter what. Instead of withdrawing more money, you have to teach yourself to plan around this lump sum of cash.

7. Deposit whatever’s left

Say you’ve made it to the end of the month, and you have a bit of money left. First off, congratulations! Second, you might want to consider saving or investing that money instead. After all, you just taught yourself that you allot more money than you spend. 

Three tips to remember when using the cash envelopes system

When you start using the cash envelopes system, there are specific tips you should remember! Here they are:

1. Remember to select “Cash-on-Delivery.”

When you buy something with your Visa or PayPal, even if it’s an accident, then you’re missing the point. You may forget if you are not intentional about using the cash envelopes system. All of your wants, and I do mean all of them, have to be paid for with cash.

2. Store your cash envelopes in a secure place

One of the drawbacks of cash is that it’s not automatically kept in a secure place like a bank. Instead, you need a safe place to store your envelopes at home. A safe or lockbox will help you keep your cash secured when you’re not spending it. This is especially important if you have large amounts of money in cash, like $1000 or more.

3. Consider keeping a portion of your emergency fund liquid

Whenever you have leftover cash every month, you should consider saving it but not depositing it in a bank. Keeping it at home as an emergency fund can be a huge help. Cash can never be replaced completely because it doesn’t need servers or the internet to be used. In the event of an emergency and the internet/electricity goes down, you’ll be thankful to have that cash stored.

The cash envelopes system has helped many Americans, including myself. If you want to learn more financial tips and tricks like this, then join the financial fam today! As a member, you’ll receive personal finance tips and insider information from me. Occasionally, I’ll even send a special message to remind you that you’re doing great, sis! Signing up is quick and 100% free, so what’re you waiting for? Join today!

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Carola Jain
3 months ago

Having a cash envelope system can help people save money, ensuring that they don’t go beyond the budget they’ve set. Great tips that will help people toward this goal!