Cash Envelopes: How to Use the Cash Envelope System
Using Cash Envelopes helps you to be accountable and stay on budget. Keeping track of your expenses in each category lets you know where your money is going. Today we are going to show you how to use the cash envelope system.
How to Start the Cash Envelopes
Once you have created a budget using our FREE budgeting sheet and developed a zero-based budget you will want to use cash for your variable and discretionary expenses and categories.
This budgeting method is a way to force yourself to accurately budget discretionary expenses every month. Each month when you work on your budget, you allot so much money for those variable expense categories.
Go through your budget and envelopes and choose gasoline, eating out, groceries, etc and once you deposit your paycheck you will take the amount of cash you need out for your envelopes. You can also save your receipts in the envelopes.
The key is to stop using your ATM card and Credit card. This way you know exactly how much you are spending and when the cash is gone, you are done for the month. It is critical that you stay focused and create good spending habits to stay on budget. If you find you are running out of cash in a particular category, you can adjust it the following month or decide to do something different.
For example. My daughter likes to text before school gets out and ask if we can go eat when I pick her up. If it’s not in my budget, then I bring a snack from home and a water bottle so she can have a snack before dinner. I am using what’s on hand instead of using up my cash.
Benefits of Using Cash Envelopes
The benefits of using the cash envelopes are once you have determined how much you will spend each month in that category, you will add the cash to that envelope when you get paid and record your transactions based on your beginning balance. Once you come to the end of the allotted amount, you are done for the month.
The biggest benefit is that you are now in control of your money, it is not going out of the window with the ATM card. You know exactly what you are spending and have a record and receipt of each transaction.
Each new month you can adjust the beginning balance and work on your spending. Once you write out what you spend each month it helps you with your money mindset.
Keep in mind that when you budget for it, there is no shame in spending the whole allotment, remember your monthly budget is not to be restrictive. It is to give you the information you need to make the best decision for your future.
Creating Categories
You will use the printable cash envelopes for your categories that are NOT fixed as utilities where you make one payment a month. It is for categories such as:
- Eating Out
- Personal Care
- Groceries
- Clothing
- Medicine
- Pets
- Entertainment
- Gasoline
- Household Items
- Sinking Fund
- Emergency Fund ($500 – $1000) Not 6 months Emergency
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Teach Your Children How to Budget
Using the envelope method is a great money teaching tool for your children. The younger they are, the better the benefits. Money doesn’t have to be taboo and it’s not a four-letter word. You can teach your kids about using cash and staying on track with this system. You can give them some envelopes so they can do the same. What greater legacy can you give your children than teaching them the gift of financial literacy?
Printable Cash Envelope Templates
You can use regular white envelopes if you choose or you can use these Printable Cash Envelope Templates I created. You can also get the cash wallet from Dave Ramsey which he talks about in his book Total Money Makeover.
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