Budget Bzzz: The Cash Envelope Method

Every so often, I add a new trick to my budgeting system. Sometimes this new addition helps, and sometimes it doesn’t. Recently, I tried the cash envelope method, also known as the envelope budgeting system, and this was definitely a positive move. The idea is that you pay everything in cash and don’t use a credit or debit card. Instead, you withdraw a certain amount of cash from your bank account and divide it into the payments needed for different expenses. Then, place each amount of cash into an envelope, label it with the name of the expense, and don’t touch it until paid. Sounds simple, right? Well, after using this system for about a month, I discovered there were some advantages and disadvantages. Continue reading to see what worked for me (and what didn’t).

  • It works, but you need lots and lots of discipline. With the cash envelope method, preparation and organization are key. At the beginning of each month, as you are preparing your budget, think about what expenses are automatic withdrawals or can be paid with cash or check. Then, schedule in the bills that will be automatically taken out of your account. After calculating your new bank account total, determine how much money will be needed for the rest of the month’s expenses. For me, all of my bills are automatic withdrawals, so I used this method for my extra expenses, such as groceries, toiletries, etc. Lastly, be prepared to make multiple trips to the bank or ATM. For me, I withdraw money in larger amounts and then set aside individual amounts for the different expenses. To calculate that bigger amount, I added in how much I would spend on the individual expenses. Getting started can be confusing at first, but it is worth it.
  • One downfall for me was not recounting my extra cash often. Early on, I allotted different amounts for upcoming expenses. However, if I didn’t spend all of that certain amount, I had change left over (mostly one dollar bills). But, I discovered I was able to use this loose cash on expenses that popped up during the month (it acted as an emergency fund). Lastly, when I didn’t count my cash often, I relied on my debit card for some purchases. One of the ways to fix this mistake is by always knowing the amount of cash you have on hand.
  • It provides you with a sense of security. I went ahead and set aside money for upcoming, planned expenses towards the end of the month. When the expense was finally needed, I was at ease knowing I already had the money for it and didn’t have to worry.
  • Adjust your system to fit your needs. The cash envelope method is very flexible and can be individualized for any budget. For me, it worked best continuing the automatic withdrawals and using this system for the remainder of my monthly expenses. For you, it might work better to use the method for everything, including your bills. Find what works for you. This budgeting method should help your budget, not harm it.
  • Stick with it. This method is unique and will take time to work. Try using this system for only a few weeks and then you can lengthen the time as you become familiar and comfortable with it.

The cash envelope method is something I will continue to use in my budget system. After time, I will be perfecting what works and how I can make it better. You can do the same. Give this method a try, at least once, because you never know how much more money you’ll have left over after all expenses are paid.