Cash-Only Envelope Method – Money Management
The cash-only envelope method of money management has been around for a long time because: it is simple, and it works.
How it Works
Using the budget you have set up for yourself:
Determine how much of the budget should go into each envelope based on how often you are paid. For example, if you are paid weekly – calculate for weekly expenses, if you are paid monthly – calculate for a monthly period.
Set up envelopes for each of the types of expenses you pay in person, ie groceries, gas, entertainment, clothes, etc. Write the name of the expense on the envelope and the budgeted amount that goes in the envelope.
After your paycheck has gone into your bank account, withdraw the exact, budgeted amount you will need in cash and fill up each of the envelopes.
When you need to spend money from one of the envelopes, take the amount you will need out and put in a slip of paper indicating how much you took. Do not take money out of an envelope for anything other than the expenses for that envelope.
When you come back from making your purchase, put the change and the receipt into the correct envelope.
If you run out of money, stop spending.
If you have money left over at the end of the period, put it into your emergency fund.
Using the receipts in the envelopes, record the amounts you spent in your budget tracking form.
Why it Works
There are several reasons why the envelope method works:
- It forces you to think about your spending
- It forces you to plan you spending
- It is a visual reminder of your budget and your goals
Perhaps, one of the most important things that makes this system work, is that it stops you from using plastic. Both debit and credit cards are too easy to use because they don’t feel ‘real’ – whereas handing cash over, is very real and much harder to do.
Will it Work for You?
Try it and find out!
Remember, it will take a few months and a few tries to get the system running smoothly. Stick with it, you are worth the effort!