What Is Driven Saver’s Cash Envelope System?
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The envelope system is a way to track how much money you have in each of your budget categories for each month by keeping your cash safely in each of the envelopes. At the end of the month, you can see just how much cash is left. This is an excellent way of literally watching your money come in and go out just be glancing in the envelope.
Talk about easy peasy!
How do you know if you are excessively spending in one category or another? Through the cash envelope system, you can see just how much you are spending in a certain category, then take cash out for the amount you’ve budgeted for and stick it in an envelope. When going shopping for items in a specific category, you only use what’s in the envelope. Once the money is gone, that’s it. It. Is. Gone. Having a visual reminder will help you to stop overspending and allow you to refocus your spending habits!
How does the whole envelope thing work?
We often overspend because no one is standing over our shoulder telling us when to stop. That would be so handy, right?! This is where your cash envelopes begin. They are a great tool for helping you stay on a budget. YOUR BUDGET!
Here’s how to use them:
1. Think of the budget categories that need a cash envelope.
We have come up with 8 categories to help get you started, but it’s a good idea to use the envelope system for items that usually blow up your budget. Some of these things include groceries, restaurants, fun, auto, and health/beauty.
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Here’s the cool part! You get to decide which budget categories are awesome enough to get an envelope. The one’s we are starting with include:
- Groceries
- Household
- Restaurants
- Fun
- Clothing
- Auto
- Health & Beauty
- Misc.
Other categories you may choose could include:
- Missions/Tithe/Giving
- Savings
- Insurance
- Education
- Gas
- Medicine/pharmacy
- Personal
- Entertainment
- Gifts
- …the sky is the limit!
2. Figure out a budget amount.
Do you tend to overspend on ordering out and delivery? Then consider limiting yourself to a specific amount for the month. If car maintenance is always burning up your cash, then decide on a certain amount to spend AND THEN STICK TO IT!
If you are married, you and your spouse MUST be on the same page with the budget amounts or you are bound to have further challenges. If you are single, consider having a accountability partner who will commit to holding you responsible for your budget. This person could be a friend, family member, or coworker who you trust and is on board with specific money principles you are implementing.
DO NOT GET SOMEONE WHO THINKS JUST LIKE YOU IF YOU BOTH HAVE CHALLENGES WITH DEBT OR EXCESSIVE SPENDING. There is nothing worse you can do if trying to get out of debt (or control your spending) by confiding in someone who is just as broke as you are. It never works! Ever!
3. Create and fill the envelopes with cash for the budget categories.
Ok, so you have decided this isn’t a dumb idea after all. (Maybe.) So, we will pretend that you are budgeting $600 a month for groceries and get paid twice a month. When you get your first paycheck of the month, go to the bank and withdraw $300 from your bank account, and put that amount of cash in an envelope. Go ahead and write, “Groceries” on that envelope. At the next paycheck, do the same thing and drop $300 in the envelope. That’s it! That’s your $600 grocery budget for the month!
Now…you have to make sure that you take enough money, IN CASH, with you when you go get your groceries. If you take $150 cash and your total comes to $160, take some things out of the cart and put them back. Yes, we know it’s hard! BUT, it is WAY better than going over on your grocery category and burning up your whole budget for the month! If you don’t spend all of the money from the “Groceries” envelope, you need to put the change back in the cash envelope for use during the next trip.
What if I don’t spend all of the money in the envelope at the end of the month? Great question! You can choose to evaluate your budget as you may not need to allocate the $300 for Groceries, but may need that money for Auto. When you set YOUR budget, YOU get to decide where YOUR money goes! if you have a mortgage, consider dumping that extra money on your principle!
What about if I forget my envelope? ONLY the money you are dedicating to groceries is going to be spent on groceries. And, NO money comes out of the groceries envelope unless we are paying for food at the grocery store. If we venture out to go food shopping and forget the envelope at home by mistake, we are heading back home to get the envelope!
4. Spend only what you’ve put in each cash envelope.
We can’t say this often enough…when your money is gone, it’s GONE! Are you wanting to go to the store and no money is left in the envelope? Then we are raiding the cupboards or fridge because our budget has been blown. This is a great opportunity for being creative and a way to get really intentional about your spending. IT IS A WAKEUP CALL!!!
Advantages to Using Cash Envelopes
- Envelopes helps keep us focused.
- Envelopes help us to be disciplined instead of controlled by our money.
- Envelopes help keep us accountable to our spending, spouses, and accountability partners.
- Envelopes give us a visual to prevent overspending.
What if I pay online?
The envelope system is best for in-person, physical purchases as there is a physical-mental connection when we are touching cold hard cash! When we are 100% digital, it is way too easy to spend without thinking about the amount. PsychologyToday.com concluded the following when we pay with a credit card:
- We almost always spend more than planned.
- There is no physical pain when we make purchases. (It’s easier to spend more).
- We tend to purchase more unhealthy things.
- We lose a personal relationship to the items we purchase.
This isn’t to say that credit cards are evil or something that no one should ever own. We tend to agree that debit cards are the preferred option when cash isn’t an option.
The cash envelope system does work better when you are in a location to physically make a purchase. Some places include shopping for groceries, eating out, or getting an oil change.
Online purchases are still not out of the question, but may be a little trickier. To be successful, write the budgeted amount on the outside of the envelope and do not spend any more that what you have budgeted.
What if I run out of money?
Again, do not borrow from the other envelopes. It is really tempting to just move funds from one envelope to another. So, we will pretend that we ran out of money in the Auto envelope because my husband NEEDED to have a remote car starter and there is extra money from your clothing envelope, should money be moved to pay for this expense?
Ok, so that was all in jest, but let’s pretend that the auto need above is actually a Health & Beauty need for a new makeup. Don’t be tempted to steal a little from your Fun envelope that was being saved for a date night with your spouse. It will be easy to give in to this temptation, though.
What About Emergencies?
If a crisis comes up in the middle of the month or something happens and you have absolutely no choice but to shift your envelope funds, call an emergency budget meeting with your spouse or accountability partner to talk it through. Discuss, adjust the budget, and agree on it together. Both parties must be involved. This is not a one sided decision.
What If I Have Money Left at the End of the Month?
What if there is “extra money.” If there is some extra, way to go! You were under budget and that is truly one of the best feelings in the world. Go ahead and celebrate but within reason and with moderation. Maybe this means going out to eat, grabbing a tea, or a small ice cream cone. maybe better yet, roll the money over to next month for an extra cushion, or make another envelope…”SAVINGS” and dump that money into it to see how much you can grow it.
Other Options?
Envelops are just one powerful tool and don’t feel compelled to only use envelopes. Amazon has some great options for Cash Envelope Wallets which can be really pretty!
One wallet that I HAVE LOVED is the Savy Cents Wallet. You can choose different colors and separate out your “Envelopes” into pockets within the wallet and also store all of your other important necessities. Be creative and come up with your own design! So awesome and handy!!! Currently is on sale for $32.
We hope that this helped explain our cash envelope system a little bit more and look forward to hearing your thoughts on this. If you haven’t done so yet, go subscribe and get your FREE BONUS cash envelope system now!
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