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Hey! Have you heard the one about the guy who makes $120,000 per year… but still lives paycheck to paycheck?
Or the one about the single mom raising a teenage daughter… who can’t seem to stretch her modest salary enough to buy her the prom dress she so desperately wants?
How about the working class dad who works two jobs… just to give his son music lessons and send his daughter to ballet?
We all know someone.
Maybe you are that someone.
And it’s ok.
You can change this.
We can change this.
With three simple words…
Cash Envelope System.
What? Huh?
Don’t worry… it all sounded very “mob boss” to me too, the first time I heard the phrase.
But hear me out.
Because it works.
And more and more people are doing it.
However, before I delve into specifics, I need to point something out…
The tendency to overspend is not necessarily your fault.
And it’s likely not intentional.
I know this.
You know this.
But it is, indeed, the monster society has created.
How, you ask?
That’s easy….
The list goes on.
The world is shoving new forms of cashless currency down our throats all of the time.
And why shouldn’t they?
After all, it’s easy.
It’s convenient.
Honestly, who needs actual cash in their wallet anymore?
In fact, whispers to get rid of Mr. Lincoln’s penny have been shushing their way across the Federal Reserve for years.
And that, my friends, means it’s only a matter of time before we become an entirely cashless society.
It’s on their radar.
And there are definitely some good points being made in favor of it.
First and foremost, that cashless currency will likely result in increased spending… thus improving the economy.
But what they are neglecting to mention is the increased debt people will potentially find themselves in as a result.
Why?
Because there is very little accountability when you’re swiping a card.
When you’re clicking a “buy it now” button.
When you’re iTunes account is directly linked to your credit card.
I could go on.
But I won’t.
You get the idea.
It’s easy to go over budget… buy something you don’t actually need… when you’re just swiping, clicking or “talking” to Alexa.
- So how can you break the cycle?
- How can you avoid overspending?
- How can you actually start saving money?
Simple.
Cash envelope system.
Remember… I mentioned it earlier?
Yeah, that.
- So what is the cash envelope system?
- Who came up with the idea?
- How does it work?
- Are there tools to help me?
- Is it hard?
- How do I get my family on board?
These are all very good questions… and I will answer them all starting now.
What is the cash envelope system?
Simply put, the cash envelope system forces you to use cash (yes, actual cash and coins) to pay for things.
It is designed to work with your budget, forcing you to set aside cash for the different categories by keeping it tucked away in separate envelopes.
The idea is for you to see exactly how much money you have left in each budget category just by taking a quick peek in the envelopes.
There are no ledgers to balance.
It’s all there in front of you.
Cold, hard cash.
Now, I know what you’re thinking…
Is that it?
Is it really that simple?
The answer to both is yes… and also no.
Let’s be honest for a moment.
Raise your hand if you’ve ever found yourself rolling your eyes at the person in the checkout line in front of you because they are paying with cash.
Don’t lie. Nobody’s watching. Raise it. Raise it high!
The fact of the matter is, we are a fast-paced generation.
And the kids coming up behind us are moving even faster.
We have been conditioned to get through things as quickly as possible.
To multitask.
To outsource.
Rideshare.
If it gets us to our destination quicker, we will generally go with it.
That is our nature.
So when someone is holding up the line even one extra minute by counting every dollar bill and coin… it’s time wasted.
Your time.
You know you’re thinking it.
And don’t even get me started on paying by check.
Still… these people exist.
But who are they?
Are they just cautious types who don’t want to leave a paper trail for Big Brother… or are they utilizing the cash envelope system?
I began to wonder.
Who Came up with the Cash Envelope System?
Ladies and gentlemen… meet Dave Ramsey.
Dave is a name you may want to remember.
After all, he is either going to change the face of budgeted spending and debt reduction forever… or he is going to force the government to implement a similar plan for cashless spending.
How, you ask?
Well, for starters… why can’t your debit card have a built in alert when you’re close to reaching your predetermined spending limit at certain places (ie. grocery, clothing, fuel).
Or even a cut off? As in you can be declined if you go over your allotted amount for that category?
Hold on… hold on.
I know you’re thinking that I’m pretty smart for coming up with that idea… but I didn’t.
Actually, my husband did. He works in finance.
He knows money.
He likes money.
And he also believes there is a time and place for cash vs. charge.
The cash envelope system intrigues him.
And Dave Ramsey knows a thing or two.
How does the cash envelope system work?
As I mentioned earlier, you need to start by creating a budget.
The very foundation of the cash envelope system rests upon having each and every penny of your money be accounted for.
So, if your net paycheck is $1405.38 per month… that amount gets divided among your envelopes.
Theoretically.
However…
And this is important…
If you have automatic payments set up for things such as your mortgage, your car, utilities… you need to leave enough money in your bank account to cover these.
Sadly, we can’t escape the cashless society all together… try as one might.
And it’s not exactly safe to mail an envelope filled with large amounts of cash.
So if you can’t pay these things in person, don’t create an envelope for it.
Now that we’ve cleared that up…
Let’s get back to business, shall we?
Take whatever is left from your net paycheck after your recurring monthly bills are accounted for, and prepare envelopes for what I like to call “the incidentals”.
Things like food, clothing, gym memberships.
Withdraw the cash from the bank and immediately put it in it’s envelope.
Now, only you know what you truly need each month.
Every person’s budget, like their income, is different.
So start with the basics.
For example, my family’s cash envelope system would include:
Once you’ve identified your own categories, take a look at your current spending in each. See if and where adjustments can be made.
When you’re finished, set a limit in each category.
A realistic limit you can stick to, within your budget.
This is important!
Setting attainable goals increases your chance of success.
Now, just put your cash into its designated envelopes and get ready to watch the cash envelope system at work.
Finding the Tools You Need to Succeed
Now that you’ve figured out your budget, it’s critical that you stick to it.
That means, if you have allowed yourself $400 per month for groceries, you cannot go over that.
Under no circumstances can you go over that.
If you are at the supermarket and the bill comes to $117.98, but you have only $114.30 left in your envelope… you need to put an item, or two, back.
Step away from the oreo cookies!
Borrowing from other envelopes is not an option!
In fact, don’t even bring the other envelopes with you. This way you’re not tempted.
The cash envelope system only works if you’re honest.
And there are tools to help you stay that way.
Amazon.com actually sells visually appealing and useful products that work with Dave Ramsey’s cash envelope system, such as the SpendVelope and the Save Me . They include all that you need to keep track of your spending, down to the penny.
You can also save a few bucks and download a template to print your own envelopes on different color paper.
With tools like these to help you get started, why wait to give it a whirl?
Oh, wait… you’ve got two more questions.
Is the Cash Envelope System Hard to Follow?
Hard?
Well, that is subjective.
I mean, is it hard to get used to doing something new?
Sure it is.
There’s a learning curve for everything.
We all need time to adapt.
I mean, you don’t just start a new job knowing as much as the boss does… do you?
You wouldn’t try snowboarding for the first time at 40… and expect to be winning gold at the next olympic games?
Well, maybe you would. Maybe you’re an overachiever and a dreamer like that.
Good for you!
Self confidence is everything.
But in all seriousness, the cash envelope system may take some getting used to.
It’s hard not to swipe, insert or click when we’ve been hardwired to do so for most of our adult lives.
And that often paves the way for those impulse purchases, which tend to make shopping more fun!
At least for me.
Plus (and this is a biggy), unlike using a credit card or Apple Pay, the cash envelope system is somewhat akin to having your father standing behind you… whispering sensible spending advice over your shoulder… questioning your need for roasted cashews and bacon flavored potato chips.
The cash envelope system attaches tangible consequences to your spending actions.
Your hard earned cash is staring you in the face… asking the question, “do we really need this?”.
While it may take some getting used to, I’m rather certain you’ll be pleasantly surprised with how much better you feel after a few purchases.
Think of it like starting a diet… or training for a marathon.
In the beginning, you’re frustrated. Looking for reasons to justify giving up.
And then by the end of the first week, you start to see a few changes. Subtle, but they are there.
The next week brings more.
The next week a few more.
Before long, you don’t remember what your life was like before you started this new adventure.
What if I told you that sticking to your budget using the cash envelope system could actually lead to you spending less money every week?
And spending less every week means you will have extra money.
That’s just basic math.
And if you have extra money, you have choices.
You can put that money aside in a new “savings” envelope, such as:
The money you will be saving is yours to do with as you will.
Because you stuck to the plan.
But I can tell you still have some reservations. You’re wondering if your family will climb on board the cash envelope system train.
After all, your wife really loves her hairstylist… and sometimes she’s in the mood for a cut and highlights. Just because.
Trust me, I get it.
Or maybe your teenager daughter has just discovered some very expensive makeup.
It happens.
So How Do I get my Family on Board?
If you’re like me… a parent to a handful of kids that are always asking for something… the cash envelope system may not get the warm welcome it deserves when you first propose it to them.
This will change.
In time.
If you play your cards right.
By this, I mean “sell it”… sell it hard.
Tell them it’s a fun family savings plan that can help them get all of the things they want over time.
Most importantly, be sure to include them. It’s never too early to teach your kids about smart money habits.
Here’s how to get the kids involved:
1. Let your kids help create the list of budget categories.
For instance, if John says he needs money for new sneakers, explain to him how that purchase comes out of the “clothing” envelope. If Beth wants to take an art class with her best friends, Sally, let her know that money will come out of the family’s “hobbies” envelope.
2. If your children are older (12+), give yourself an allowance envelope for the month.
Each week, give your children what they’ve earned from it. This is their money to spend on whatever they’d like.
Conversely, if they choose not to “withdraw” their allowance, or they don’t truly earn it all, tell them any leftover money can go into one of your family savings envelopes (ie, kids choice or vacation). This may encourage the kids to work together towards a common goal… share the wealth so to speak. Do I hear family cruise to the Bahamas?
3. If your children are younger, forget the family allowance envelope. Instead, give them the cash and a few envelopes of their own.
Tell them they are in charge of their own cash envelope system. Let them pick their categories, design their own envelopes, and put a bit of cash in each. Some examples are:
Here's how to get your spouse on board:
If getting your spouse to join the cause is a concern, the tips for getting him (or her) on board aren’t much different than the ones you’d use on the kids.
1. Involve your partner from the start.
Let him or her help select the budget categories, and the amount of money that should go into each.
2. If you are a single income household, where one of you works and the other raises the children, make sure you acknowledge the hard work each puts into the family.
Just because one of you works outside the home, doesn’t mean the other doesn’t deserve a Swedish massage after three sleepless nights with the baby. Same goes for the spouse who commutes 1 hour each day and works some weekends so that you can afford the bigger house in a good school district.
3. If you are two-income household, consider marrying (pardon my pun) the two cash envelope systems.
In doing so, you will share the common expenses (such as gas and groceries), placing equal money from each of your paychecks into those envelopes. But when it comes to those incidentals (such as clothing and hobbies), each of you should set your own budget based on individualized income… and put that into your own set of envelopes.
4. Definitely include that “date night” envelope.
A marriage is only as strong as the time and effort that you put into it. Setting a little money aside for a date every now and again is a great way to check in with one another, make sure you’re still on the same page… and have a little fun in the process.
5. Set a big goal. Something that you both want to see happen.
Maybe it’s that second honeymoon to Hawaii. Maybe it’s a vacation home at the beach. Maybe it’s paying for your kid’s’ college education. Maybe it’s paying off your own debt. Whatever it is, if you set a goal you can both get on board with, your partner will be much more receptive to the cash envelope system and all its potential.
My Final Take on the Cash Envelope System
If you have a job that keeps a roof over your head, your family fed and food on the table… you’re in a good place. If you’re one of the lucky few who has health insurance for their family… you’re one step ahead of the game.
But circumstances can change.
People change.
Jobs change.
Policies change.
Every day.
The cost of living is higher now than it was when we were young.
And so it takes a little planning, and some savvy saving techniques, to make it through life these days. Especially if that life involves a retirement plan.
Dave Ramsey’s cash envelope system can help with that.
It takes reckless spending out of the equation by allowing you to visualize exactly where you stand financially every month.
Every time you step into a store, or go out to eat, you know exactly what you can afford.
And you will ask yourself the question, “is it worth it?”.
If you really think about, the cash envelope system buys you time… time to really think about where your money should go.
Time to prioritize.
I don’t know about you… but in a fast-moving world like ours, there are days when I’d give just about anything for a little more time.
Nicole Krause has been writing both personally and professionally for over 20 years. She holds a dual B.A. in English and Film Studies. Her work has appeared in some of the country’s top publications, major news outlets, online publications, and blogs. As a happily married (and extremely busy) mother of four… her articles primarily focus on parenting, marriage, family, finance, organization, and product reviews.
