Using the Cash Envelope System


We are following Dave Ramsey’s baby steps in order pay off debt and become more financially secure.  One of his popular suggestions is his cash envelope system.  While we are not currently using cash for everything, we have been using cash only for eating out/fun and groceries.  These are the two budget categories that we were constantly going over budget – sometimes hundreds of dollars over!  Since we implemented the system three months ago, we have only gone over budget for groceries once and we were UNDER budget for eating out one month!  Using cash has helped us control our spending and in the process helped us stay on track to paying off more debt.

She makes it sound so easy! I am really nervous about using cash but I need to get my spending under control!

What is the cash envelope system?

The cash envelope system is really just what it sounds like – putting cash into an envelope as a way of sticking to your budget.  For example, our budget for groceries is $300 a month.  At the beginning of the month, I take out $150 and put it in my groceries envelope.  That is how much money I have to spend on groceries for roughly the first two weeks of the month.  Around the third week of the month I take out another $150 and that is what I have left to spend for the rest of the month.  Once I run out of cash I have to make do with what is in my freezer or pantry.  

One month I did take out the entire $300 for the month at the beginning.  There are pros and cons to this method.  It was nice that I could spend more than my approximately $75 allotment one week if I needed to and just spend less the next weeks, however at the same time it was easier to end up with little to no money for the last week AND it took money out of my account at the beginning of the month that I did not need until the end of the month.  If you are on a strict budget where every dollar truly counts then I would not suggest doing this.  

Dave Ramsey suggests actually taking the money out on the day you actually receive your paycheck.  This is a good idea if you get two paychecks a month and are literally splitting your budget category allotments between the two paychecks.  

The bottom line is, once the cash is gone, it is gone.  Additionally, this cash should not be spent on anything except for grocery expenses.

Do I need to use cash for ALL my expenses?

This is completely up to you.  Dave Ramsey suggests using cash for any “budget busters” and this is the route I took.  We are constantly going over budget on groceries and fun/eating out and so those were the two areas we decided to focus on.  I personally think it would be a huge hassle to use cash for non-food related expenses because many times I shop online.  Hopefully, many of your fixed expenses are on auto pay or at least drafted from your bank so those would not be something you would use cash for.  Finally, don’t think of this as something that is super strict.  If you are planning on going to a concert you probably know at least a month in advance.  Budget in the cost of the tickets and purchase them online with your debit card.  All that means is that you take less cash out that month for fun expenses.

Is the cash envelope system really worth the hassle?

Yes.  A millions times yes!  While I admit that there have been times where I forgot to get cash out, forgot my envelope, or just plain didn’t have enough money left (and cheated a teeny bit), I really do believe this system works.  If you are serious about sticking to your budget and gaining control of your spending in certain areas, then you will figure it out and make that extra trip to the ATM a couple times a month.  

Like I said, we have drastically reduced our spending on groceries and eating out just by using cash.  When you see that $20 bill leave your hand and only receive a dollar or two back when you go out for lunch, it hits you how much money that meal really cost you.  If your spouse is reluctant because of the inconvenience, offer to be in charge of the cash for the first month or two and let them ease into the idea of the system.  My husband was not too keen on the idea but as long as the cash is available to him when he needs it, he doesn’t mind using it.  You can also make the system fun!  I personally thought it would make me more excited to get started if I had some fun envelopes to put my cash in.  I created cash envelopes as my first official sewing project and I love them!

Do what you need to do to get yourself and your family motivated and see the savings start piling up!

Have you tried using just cash or cash envelopes?

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