Happy Monday, Readers.
Today I’m going to cover some well-treaded territory in the personal finance blogisphere. Chances are, if you follow other creators who are into budgeting, you’ve seen pictures and pictures of lots of pretty envelopes full of cash. That’s because so many people in the personal finance space use what’s called the cash envelope system to stay organized and hold themselves to their budget.
So, what is the cash envelope system? Why is it so popular? And is it a good tactic for you? Let’s chat about all the ins and outs of this system.
Here are the basics.
- Once you have a budget, you make a different envelope for each expense category. For example, if I were to use this system, I would have envelopes for groceries, gas, dining, and miscellaneous funds.
- Some people even use them for their fixed expenses, such as rent and bills.
- The idea is that, because you’re confined to an all-cash method of spending, it’s much less likely that you’ll pull money from savings in order to cover monthly costs. This is a game changer for people who have that bad habit.
- It also makes it harder for you to go over budget in certain categories. For example, I often go over my dining budget for the month.
- Finally, there are studies that demonstrate that people feel less resistance to paying for things with cards than with physical money, so you’re less likely to make impulse purchases with cash.
The cash envelope system is a good idea for you if…
- You already have a budget
- You keep going over budget in certain categories
- You aren’t able to save as much money as you’d like to due to overspending
- You keep having to pay overdraft fees
- You run into problems with impulse purchases
- Having physical reminders helps you stay organized.
The cash envelope system might not be the best idea for you if…
- You’re uncomfortable keeping a lot of physical cash in your house and on your person
- You haven’t tried a regular budget yet
- You’re already having success with your current budgeting method
- You’re benefiting from credit card rewards and/or working to build your credit score
I personally have never tried the cash envelope system, but I see the benefits for those budgetters who are still struggling to stick to their goals. I also see the appeal of the pretty, decorative envelopes 🙂 While it’s not my style, I appreciate the simplicity and physicality that it brings to an otherwise normal budget.
I’d still like to stress that you need a budget before you dip your toes into this all-cash diet. You can get my personal budget templates here.
If you’ve tried the cash envelope system before, or if you’re ready to give it a shot, write about your experience in the comments below! I’d love to hear from you.
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And if you need more guidance with goal setting, mindset shifting, and budget brainstorming, you can purchase my Money Map Workbook for just $9 –> Get Your Money Map Workbook