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April 24, 2020 · Leave a Comment

Your Complete Guide To Using Cash Envelopes

This post may contain affiliate links for your convenience.
Click here to read my disclosure policy.

Budget· Budget Tips· Debt Free· Debt Free Tips· Frugal Living· Saving· Ways We Save

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Whether you want to start using cash envelopes, or someone has suggested using a cash budget is the best way they’ve been able to stick to their budget, you’ve got some questions. I’m going to walk you through some of the most common tips, tricks, and questions regarding using cash envelopes. And because I always find it helpful to see how people are using and adapting something to work for them, I’ll break down how we use cash in our budget as well.

Your Complete Guide To Using A Cash Budget

Why You Should Use Cash?

Some of the biggest names in personal finance will tell you to use a cash budget. The reason? Cash is king!

What that means is that by using a cash budget, you can easily see what you have left in your budgeted categories rather than flying blindly with each swipe of the debit card, and eventually overspending.

Just because someone recommends that you should use cash doesn’t mean that you have to. The truth is that you need to know your level of self-discipline when it comes to your debit and credit cards.

If you are someone that already has a strong discipline and don’t swipe without thinking it through, good for you! Hubs is in good company. But I have to say I am not one of them. I do so much better when I can see what is left in each category rather than a vague number subtracted from a bank account estimate.

So, should I use cash in my budget or not?

Yes!

Your Complete Guide To Using Cash Envelopes

Years ago I was against using cash because I thought it made it too complicated since we didn’t have a physical bank location within a 2-hour drive of our house. I was very limited with what denominations local ATMs had. Combine that stress with always having two young kids in tow, I thought it was best for our budget to not carry cash on me at all, and skip the ease of expense tracking with what cash is left in each envelope.

Ironically, keeping track of coupons and coupon deals was something I was willing to do. To each their own.

As my kids got older and required less of me watching them 24/7, I tried a 30-day cash budget experiment and found that even though there was a little more legwork to fit it into our budget (more on that later), using a cash budget absolutely helped me keep track of our overall spending and how much we had left in each category.

I know that it also helps our kids. They each have an envelope for their allowance that is filled once a month, on Hubs’ paydays, along with any extra chore money they earn. They can easily see how much money they have saved up, or how much they spent because their envelope is empty.

Using a cash budget works. But with that, so must you.

That means sticking to your budgeted amounts only, and not using your debit card “just because”.

How To Get Started Using A Cash Budget

First, you have to make sure that you have a zero based budget set up. It is hard to start implementing a cash budget strategy if you don’t have a budget set up first.

After your budget is set up, you need to look back at your expenses. That means looking at the last 3 to 6 months of purchases, and seeing what amount you spent on food, household items, personal care items, clothing, restaurants, gifting… you get the point.

Track what you spent, and then total up how much you spent during each month.

Were you pretty spot on each month? If you spent $500 on food one month, and then $550 the next, that’s pretty consistent. I would budget on the higher end first, and if you don’t need that much in your budget, you can always reduce it the next month.

Did you spend an exorbitant amount on eating out each month? This would be an excellent place where a cash budget will help you. If you spent $100 on eating out for a month, and then $300 eating out the following month, try starting with $100 in cash each month to spend on restaurants.

This way you are not completely cutting yourself off from eating out {I get that there are numerous situations where eating out is just what needs to happen because it is better than not eating at all}, but at the same time, you’re trying to stick to a budget rather than going overboard.

 

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Payday! Time to fill those envelopes up until August 14th! . Groceries: $680 Household: $130 Clothing: $90 Hair: $20 Pet: $90 A: $10 O: $10 B: $10 Kate: $40 Hubs: $40 Family Fun: $90 Miscellaneous: $40 Vacation: $120 Back to School: $130 . Fun fact… it doesn’t bother me carrying all that around as long as they’re divided up in their envelopes. When it’s a single stack, it bothers me to no end!

A post shared by @ makingcentsmatter on Jul 15, 2019 at 4:32pm PDT

What Categories Do I Need For Cash Budgets?

As I mentioned, using cash is best for parts of your budget that you tend to spend blindly on. I would not use a cash-based budget for monthly bills and most non-monthly expenses.

That said, these are the categories that work best for our family:

• Groceries
• Household/Personal Care
• Family Fun {our eating out / movie money}
• Pet Care
• A Allowance
• O Allowance
• B Allowance
• K Fun Money
• D Fun Money
• Hair
• Clothing
• Vacation
• Back to School
• Miscellaneous

Some other cash categories used by others are:
• Fuel
• Baby
• Lunches
• Auto Maintenance

All of these categories don’t get used every month, but these are categories I have envelopes made for and will fill when we need them. For example, when I’m writing this, it is April. I have started our Back to School category, so this envelope just started filling up.

And to be clear – I didn’t start a cash budget with all of these envelopes. I did start with Groceries and Household/Personal Care because those were the two categories I had the hardest time getting the spending under control, even after we slashed our grocery budget by half.

 

View this post on Instagram

 

As I explained in my YouTube video, this paycheck we’re doing our envelopes a little different. It’s super busy this month, and rather than taking out cash, we’re doing debit. Past experiences tell me this is best when it comes to busy months in our house. Since then, our quarantine has made it a smidge less busy… but we’re still going cashless for the month.⁣ .⁣ But that doesn’t mean we’re going totally blind into this budget. I will still be dividing my transactions as if they were paid for in cash, I will be putting the receipts from the purchases in these envelopes, and tracking how much we spent from each category with the spending trackers on the back.⁣ .⁣ By the way, you could have these totally cute envelopes too! They are part of a set of 6 floral envelopes I just made available in my shop: https://www.makingcentsmatter.com/shop – or link in profile. Use the code MAKECENTSMATTER for 10% off anything in my shop.⁣ .⁣ Stay tuned… I have a lot more to upload, and will try to get to them soon. This of course depends on how the kids and doggo are doing with their mandated staycation. ⁣ .⁣ .

A post shared by @ makingcentsmatter on Mar 16, 2020 at 11:36am PDT

The other categories I added in over time. Our Hair category, for example, is because the barbershop Hubs and my boys frequent only works in cash, so I prefer to just have some cash on hand for that specific purpose rather than pulling from a different envelope and then trying to remember to refill it.

How Much Cash Do I Need To Take Out?

The simple answer is as much as you need to cover your categories, but not more than your budgeted amount. And that is going to take some effort on your part. Check to see how much you spent in each category for the last few months.

Now to the calculating part.

Let’s say that you are paid $1000 weekly, and you know that you spend $150 on groceries and $20 each week on household and personal care items. That totals to $600 each month for groceries and $80 per month for household and personal care items. You know that you also spend roughly $60 on pet food and supplies for the month or about $15 per week.

So with your weekly paycheck over 4 weeks, you would take out $185 in cash divided up like this:

Your Complete Guide To Using Cash Envelopes

Which denominations you use are completely up to you.

Like I mentioned before, I don’t have a bank location near me. So I rely on ATMs in their network and the denominations they offer. For me, knowing that the ATM I need to use only does denominations of $20, I would take out cash denominations like this:

Your Complete Guide To Using Cash Envelopes

That way I still have the monthly amount for each category, but it’s divided out each week a little differently based on only having an ATM with $20 denominations available.

 

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Time to fill those envelopes! . We dont have a physical location of our credit union near us, so I rely on an ATM in their network. . Multiples of $20s are what most of my categories are, and the ones that aren’t, I wind up making change from other envelopes. . $10s are the bane of my existence! I was so excited I had some $5s I could swap out this week too. ?? It really is the little things.

A post shared by @ makingcentsmatter on Dec 6, 2018 at 10:32am PST

The first week I would take out $200, putting $160 in groceries, and $20 in household and pet. The second week I would only take out $180, putting $20 into household and pet each, and then leaving the remaining $140 for groceries. I do it this way because the first week I took out $10 more than the $150 per week that I normally spend, so this week I am taking out $10 less than that average amount.

How To Use A Cash Budget

When you are out at the store and it is time to pay, you will take money from the cash envelopes for that category. Leave your cards where you cannot get to them easily, and don’t use them for categories that you have in cash.

This takes a lot of self-discipline. Don’t get discouraged if you aren’t sticking to it right away.

What If I Have Money Leftover?

This goes off personal preference. I know some people in the debt-free community love to head to the bank, deposit that unused cash in their checking accounts, and either stick it in savings or make an extra debt payment! And that’s awesome!

But that doesn’t work for us.

Like I mentioned before, we don’t have a physical location of our credit union near us. So when we have extra cash leftover in our envelopes, I save it for the next time I fill the envelope.

For example, if I have $20 left in my grocery envelope, I will reduce how much I take out for groceries next time by $20, and pay an extra $20 towards debt.

In the end, you need to use a method that works for you.

 

View this post on Instagram

 

Envelopes filled! . Do you use cash or debit? . For us, it’s a mix. Cash for certain categories (food, household/personal care, allowance, family fun money and so on). Debit for other categories (fuel, Chewy purchases, copays, etc). . The envelopes we have vary based on our budgeting needs. They are not the same month to month (although they are close).

A post shared by @ makingcentsmatter on Jan 16, 2020 at 12:00pm PST

What If I Do Spend All The Money?

In this case, to stick to your budget and reach your overall financial goals, you need to go back to the drawing board.

You need to reassess your categories to where you can spend less in during that paycheck, and then stick to it.

With the next paycheck, you need to go back and reassess. Did you underestimate the amount you would need, or did you overspend? Either adjust your budget categories as necessary or tighten in the spending reins.

How Do I Share Cash Envelopes With Others?

I am the one that usually does all the shopping. All. But in the rare instance that I need Hubs to pick up something, most often I will tell him to use his spending cash, and I will reimburse him when he gets home from the proper envelope.

For example, he usually carries a $20 on him. If I needed him to stop for some milk and coffee on the way home, he will use his $20, hand me all the change (bills and coins) when he gets home, I will put the bills in the grocery envelope and hand him a $20 from the grocery envelope. This is what works best for us.

Find a system that works best for you. If you split the shopping equally, then split the cash envelope equally.

Your Complete Guide To Using Cash Envelopes

Using Cash Envelopes:

You can use any envelopes you have! Use envelopes from junk mail, use mailing envelopes, make your own, use printable envelopes… use whatever works!

I go back and forth between using laminated envelopes and printable envelopes that fit inside my wallet. You can check out how to make your own laminated cash envelopes, or purchase your own printable cash envelopes. You can also get a free set of printable cash envelopes in my Resource Library.

Recently I have been keeping the categories I use the most often in my wallet, and the categories I don’t use as much at home in the planner. This isn’t always the case, and what I use at the time depends on how busy that particular season of our life is.

During our COVID-19 self-isolation, we used our debit card and ^^cashless trackers^^. Again, it depends on the season of life we are in; use what works best for your current season of life.

Online Shopping On A Cash Budget

Is it even possible to incorporate online shopping with a cash-based budget? The short answer is YES!

There are a few ways you could approach this. First is you could take out that money in cash, and use it to buy a gift card or a prepaid Visa, and then use that online. If you’re someone who tends to add a lot of stuff to your orders just because, this may be the better option for you you’re limiting the amount on that card.

We do it a little differently. In my Budget With Me videos, I break down cash envelopes to include a Pet/Chewy category. Our household has a puppy, a geriatric cat, and two male rabbits. It is infinitely easier for me to have the majority of our pet supplies delivered to our house rather than hunt it all down between four different stores. I keep what we need on an 8-week autoship, and budget for it each month.

While I could keep our debit card on file with Chewy, and pay for it outright, I don’t. That means, yes, we do still use our credit cards even in debt repayment. For a detailed explanation of why you can check out this post.

But whatever the amount was that I have on our autoship that month, I budget for it that month and then pay it off on the credit card that month. I don’t give it time to accumulate interest and carry the balance.

Make Sure You Succeed

To succeed at using and sticking to your cash budget, make sure you have clear financial goals. Understand why you are going through this process of making the budget and sticking to it.

Don’t forget to reassess your budget categories periodically. Spending habits change as you go through life. While our family of 5 hasn’t grown larger, my kids certainly have grown bigger than when we first started budgeting. Feeding two teenage boys is a real struggle. I have had to adjust our budget to meet not only our grocery spending needs but also our fuel spending. School activities for three is also a struggle.

As with all things personal finance, it is very unique to your situation. Find a balance that works for you. And don’t forget to give yourself some grace as you’re starting your cash budget.

Do you have any tips on using cash in your budget? Leave them below!

Your Complete Guide To Using Cash Envelopes

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makingcentsmatter

makingcentsmatter
Only you can determine what your financial goals a Only you can determine what your financial goals are. If that means you're adding money to your savings account, or contributing to your retirement, while you are paying off debt, then so be it!⁠
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March Debt Paid numbers are in!⁠ .⁠ House: $51 March Debt Paid numbers are in!⁠
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House: $511.13⁠
Citi: $0 – this has a residual $3 in interest charges since payoff, due in April⁠
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Total Paid in 2021: $8,258.84⁠
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Extra Payment: There isn’t one this month since we were $25 away from zeroing out the budget for our February 15th monthly paycheck. That $25, and monies left from our January 15th paycheck, covered our OOP costs for Hubs’ filling. We also have some savings goals coming up that need to be met, making our debt payments a little lower for the time begin.⁠
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The battle for who can charge what tonight is abou The battle for who can charge what tonight is about to begin. 😬⁠
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My kids run off with my charger, plug it into one outlet 5 feet from where they found it like that particular outlet is the only one in this house, and then proceed to fight over who can charge their device first at night.⁠
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Then they get grumpy when it's their turn and it's not the proper input cable. #itwasmychargerfirst #dontlikeitgofindyourown⁠
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A needs his wisdom teeth taken out. I've talked a A needs his wisdom teeth taken out. I've talked a bit in our February Budget Check-In about how much of this I think we'll owe, and you can check that out on my YouTube channel if you're interested, but I wanted to say here...⁠
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To the mother with little kids struggling to get your finances in order, it will get better. I wish I could have heard those words years ago.⁠
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Nearly 10 years ago we were facing a $1,400 out-of-pocket portion for A's Phase 1 orthodontic work (I looked it up after I uploaded the video... we had a $1,400 portion).⁠
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It was a lot of money for us at the time. Our kids were 6, 2, and 3 months old. I don't think we even had $500 in savings, and I just left a part-time teaching job because it wasn't paying the part-time daycare bill, so paying our portion in full was just a dream I didn't think was achievable.⁠
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I was even stressing about the monthly $100 payments. We were so strapped. It was our breaking moment to start cutting costs and budgeting more effectively. We've learned a lot in that time period.⁠
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What we've learned is that it does no good to stress about it all the time. Life happens. All you can do is try to plan ahead, and if it's something that's unplanned, readjust. It won't always be easy, especially at first, but it will be worth it.⁠
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Nearly 10 years later, we are still paying off our debts. Student loans suck. But I see this bill as a reminder of how far we have come. Seeing a bill like this doesn't stress me out like it used to, and I know we can easily create a plan that can get it done and out of the way.⁠
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Will it delay our debt-free date more? Yes. But it's not worth stressing over. Life happens, readjust, and continue on down the path. It's called a journey for a reason.⁠
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It's almost payday! Here's how our variable budget It's almost payday! Here's how our variable budgeting categories are working out for the pay month.⁠
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Food is looking good this far into our paycheck, probably because miscellaneous - which includes eating out - took a hit with unexpected purchases. Pet is low for this time of the month, and Household is spot on.⁠
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Fuel looks like it'll be lower than last month (yay for weeks of snow days & delayed school starts), and Therapy had one more appointment than initially planned.⁠
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Garden, Dental, Medical & Propane are not included in these estimates so far because those expenses are coming from sinking funds. Once we're done with the month and review the budget, I'll move over the total amount spent from those sinking funds.⁠
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How's your paycheck budget coming along?⁠
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Automating your finances makes saving money and bu Automating your finances makes saving money and budgeting more convenient, and therefore easier on you. Out of sight, out of mind, right?⁠
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What's one thing you can automate this week to make your finances easier?⁠
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Me? I'm going to set up our sinking fund transfers to automate every payday (the 15th of every month). Our bank set up a feature on their app where we can schedule savings transfers now, and I'm going to take advantage of it!⁠
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Oh my word... our miscellaneous category has gone Oh my word... our miscellaneous category has gone a smidgen overboard this month!⁠
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I foresee a goal for March's paycheck to at out less than twice. That's where this category went awry. $99.16 of it went to eating out. 😑 Some of it was avoidable, but not all of it. Having to drive to multiple appointments in one day during snow squalls and rearranging our whole day was one of those unavoidable instances.⁠
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Tracking our expenses - much like a budget review - is vital to sticking to your budget!⁠
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