The cash envelope system isn’t new but has been evangelised by American radio host Dave Ramsey and is very closely associated with his debt management techniques.
With a just a scroll through social media, you’ll quickly see how effective this method of simply dividing up your monthly budget into categories and putting the cash in a separate envelope to limit your spending in those areas.
How to do it
Start by reviewing what you spent last month’s salary on and categorising your spend areas (not bills). In order of amount you spend in each area, your categories will be similar to this list:
- Eating Out
- Personal care
- Fun Stuff
Below are the ones I have chosen for myself but everyone’s circumstances are different. The great thing is that there is no judgement. After you’ve paid your bills and put money towards savings/debt payments then what is in your envelopes is for you to spend on what you’ve planned.
I could stop paying for my nails to be done each month but I don’t want to and the hour to myself for a little self care is worth the money to me.
How to make sure it works
It’s really important to check in with your partner and kids (if old enough to understand) and make sure that you’re all on the same page with your efforts. Especially areas like groceries could easily go wrong if someone in the house forgets to get the meat out to defrost and orders another takeaway instead!
Get some envelopes that work for you
I’ve got these envelopes from Amazon. I bought them because they’re vinyl so I can put labels on and peel them off if I need to change them. I just use a basic hand held label maker.They’re also all different prints in the pack which helps me identify which one I need to pull out quicker.
As soon as it is pay day, withdraw all the money for your budget envelopes and get them filled. Opt for larger envelopes if it is a category you’ll spend from multiple times. This is so you have room to store the loose change. Things like fuel which I will only spend once a month, I have in a smaller amount where I can just store larger notes.
Keeping a record
I keep a piece of white card in my larger envelopes to track what I’ve actually been spending on, unless I get a receipt. In this case I just store the receipt in the envelope until the end of the month for proper filing.
If you prefer to write directly onto the envelop then you’re better off with paper envelopes but these are one use only so could work out more expensive.
If you’re now wondering how to handle online purchases then check out this great youtube video.
You can start with just removing your Apply or Google Pay from your phone. Spending mindfully is the key and cash is king!
Disclosure – this post contains affiliate links.