There’s a lot of buzz around the cash envelope system and I’m sure you’re thinking, What is the cash envelope system? Does it work? Could it work for me?
This post will help you understand what the cash envelope system is well as some pros and cons of the system.
Also, I explain using spreadsheets to budget as this is another great way to budget if carrying cash is not ideal for you.
benefits of Budgeting
Budgeting is the first step to financial success.
It doesn’t matter if you make $30,000, $55,000, or even $100,000. If you’re not spending your money wisely and saving money, you’re wasting your time.
Budgeting is all about taking control of your finances by understanding where your money is going and how much money you’re saving.
I’m sure you understand that’s easy to lose track of where exactly your money goes. You spend $2 here $5 there and then all of a sudden, you’re at $300, how did that happen?
It happens all the time and unless you commit and put together a budget, it’s going to keep happening.
Lastly, I don’t want you to think that having a budget will be limiting. It’s actually very freeing and you’re setting yourself up for success.
My budgeting story is that I saved more than $100,000 in six years. I became debt-free at 29, and traveled to three different continents during this time. I had a great time all while taking control of my finances.
cash envelope system
The cash envelope system means you pay for everything in cash. However, it doesn’t include your typical online payments like; mortgage/rent, utilities, car insurance, cell phone, etc.
You have envelopes for each of your categories and you add your monthly budget, in cash, to each envelope. Pretty simple once you know what it is 🙂
I’ll give you an example. Let’s say my total spending budget each month is $300. My categories are; Groceries ($140), Personal Care ($35), Home/Laundry ($30), Clothes/Makeup ($35), Going Out ($35), and Misc. ($25).
I will have a total of six envelopes all with a designated cash amount.
Here’s a summary of the pros and cons of the cash envelope system:
|#1 – You immediately see how much money you have left over after buying something.||#1 – It gets tricky to manage your envelopes when you make one shopping trip that covers multiple categories.|
|#2 – You get really good at planning and organizing.||#2 – If you don’t plan, it’s easy to run out of money fast.|
|#3 – It becomes really easy to stick to your budget. You can only buy with the money that you have!||#3 – It’s not convenient to carry and pay in cash and change.|
|#4 – For the first time in a while, you understand how much something actually costs.||#4 – Some places may not accept cash.|
|#5 – You become very intentional with your purchases and think twice before buying.||#5 – You have to save and keep track of every receipt.|
I tried the cash envelope system for one month and one month only. I just didn’t work out for me. It wasn’t convenient for me to carry multiple envelopes with cash and change.
Shopping with the envelopes was a little challenging. I would buy things from different categories, pull money from different envelopes, and it just got to be too time consuming.
Also, I recommend that if you do decide to try the cash envelope system, don’t buy the fancy envelopes. I’m not completely against them I just don’t want you to waste your money if it turns out you don’t like to use them.
I just used regular envelopes when I tried it and they worked just fine!
Lastly, although the cash envelope system didn’t work for me. If you tend to spend a lot of money, I highly encourage you to try this system first. There’s just something about seeing how much money you have, spending it, and then seeing how much you have leftover right away.
Spreadsheet budgeting is a great alternative if you’re not into carrying and paying with cash.
Spreadsheet budgeting means you manually enter your purchases into either an Excel file or Google Sheets.
It’s really simple to create one on your own. I don’t Excel so I created a Google Sheets spreadsheet and I love it. It took me about 20 minutes to put together and I haven’t changed it since. If you’re interested in what I use, you can download get a free copy of my budgeting Google Sheets below.
Keep in mind that if you do decide to use a spreadsheet, it’s important to be consistent and update your spreadsheet probably around 2-3 times a week.
Entering your purchases 2-3 times a week will keep you grounded in understanding how much you’ve spent so far and how much you have left for the month. It doesn’t take very long, it takes 5-7 minutes each day at the end of the day.
You can get a copy of my Budgeting Spreadsheet for free.
Here’s a summary of the pros and cons of spreadsheet budgeting:
|#1 – You can use formulas to quickly sum how much you’ve spent and how much you have left.||#1 – It can be easy to go over your budget if you are not tracking how much you are spending.|
|#2 – You can share the file with your partner and both can update at the same time.||#2 – You have to spend about 5 minutes, 2-3 times a week to enter your purchases in your spreadsheet.|
|#3 – You can use a credit card almost everywhere.||# – You can easily forget to update your spreadsheet if you don’t set reminders.|
|#4 – You can easily divide your shopping trip total into its correct category.|
|#5 – You can easily track your purchases using your credit card statement.|
As you can see from the pros and cons list above, I couldn’t even come up with 5 cons. It’s been really easy for me to use a spreadsheet and it’s helped me stay within my budget.
The spreadsheet that I created has two sections. One section is a summary that sums how much I’ve spent by category and how much I have leftover. The second section is where I enter each purchase. The only section that I have to update is the purchase section.
Below is a screenshot of my budgeting spreadsheet. I only update the table on the right. I enter the; category, date, store, total spent, and notes.
In the end, it doesn’t matter what budgeting system you choose to follow, the goal is to not give up.
I encourage you to try both systems for one month (not at the same time) and then you can decide which one works best for you.
If you are new to budgeting or are not very good at sticking to a budget. As I said before, I highly recommend you start with the cash envelope system. Give it a try for one month and let me know how it goes!
If you haven’t created a budget at all, follow 5 Easy Steps To Budgeting Success. This will help you understand how much to budget for your categories.
One last tip, regardless of which system you try first. Plan your shopping trips before you go shopping. The goal is to understand how much you will spend before you actually spend the money. This will always help you stick to your budget.