Funny thing about cash. 

The real kind. The green kind. You either love it or you hate it. The biggest thing about cash is this: You can’t spend more than you have. Have you noticed that too?

Let’s say those shoes are $90. And you only have $85 in cash. Can you buy them? Unless you can work a deal with the merchant the answer is (not rocket science here) nope. A big fat no. Well dang! So, you decide to put them on your credit card because you just LOVE those shoes don’t you?!

But, what if you were on a cash budget? Or using the cash envelope system?

Got questions? Like: What is a cash ‘budget’? How does it work? Can I do it? How do you begin? How do I say no? As a budget counselor I heard all of the above and many many more.

Before we can begin, let’s establish what a budget is.

What is a budget?

A budget is an opportunity for you to boss your money around. You can be the BIG boss. The BIG cheese.

If you don’t have a budget your money tells you what to do with each paycheck. Bill due? Gotta pay it. And what is leftover is yours to decide…only usually the leftover is pretty slim. Kinda like leftovers at dinner…not much.

Wouldn’t you rather be the boss? Have abundant extras? Save for a vacation or get out of debt?

What is the Cash Envelope System?

Before I begin, and not to discourage you at all, I want you to know that the Cash Envelope System is not for the faint of heart. It is only for you if you are serious about:

• Wanting to be in control
• Wanting to save for vacations
• Saving for your future
• Getting out of debt

It is for you if you are just sick and tired of living paycheck to paycheck. It is for you if you want to be the BOSS.

Here are your beginning steps:

     1. Determine your funding dates. Once a week, every other week, once a month. Typically it’s on your pay day

     2. Establish your fixed categories (things that are the same each month). Rent/mortgage, loan payments, utilities, child care, etc. Assign a $ amount to each one

     3. Add up those fixed categories. You now have: ‘Fixed Expenses Total’

     4. Subtract that ‘Fixed Expenses Total’ from your after tax income

     5. What you have left is your ‘Leftover Money’

     6. Establish your variable categories. Spending categories…not savings categories. Food, car gas, manicure, eating out, etc. Assign a $ amount to each one

     7. Add up those variable categories. You now have: ‘Variable Expenses Total’

In relationship to your ‘Leftover Money’, is your ‘Variable Expenses Total’:

• Less than your leftover money? Golden! Time to start putting money into those Sinking Funds categories
• Equal? Pretty good but, you have NO savings do you?
• More than your leftover? Not gonna work is it?  Remember, you can’t spend more than you have.

What do you do if your variable expenses are more than leftover money?

Well, you need to make adjustments. Delete categories. Cut back on food. Carpool. Do your own nails. Cut your husbands hair. Shop sales (Or, better yet, don’t shop at all). Don’t buy any more magazines. Bring coffee from home. There are so many ways to cut back. You might want to read ‘40 Ways to Save Money..NOW.'

You need to get those numbers, and for this tutorial, EVEN. (Once you are comfortable with even you can start putting money into your Sinking Funds categories.

Once you are even…it is now time to established your Cash Budget System.

1. Create 1 envelope for each category. You can use any envelope. I have found that fun envelopes help make the system so much more fun!
2. On your pay day (or whatever day you decided above), go to the bank and withdraw enough cash to go in those envelopes. (You will need to know ahead of time how many 20’s, 10’s, 5’s and 1’s are needed).
3. Fund those envelopes. That is one of my ALL TIME FAVORITE things to do…stuff my envelopes.

How do you use your new cash envelopes?

BEFORE you head to the store grab the appropriate envelope and bring it with you. Multiple categories…bring all those envelopes. If it has a ledger*, and you have kept up with it, you should know, at a glance, how much is in it. If not, count it AT HOME.

It is as simple as that. Because you know ahead of time that if you don’t have the cash…you can’t buy it!

You are now empowered with knowledge. 

You KNOW how much money you can spend.  You are in control of your money. Whew! I get excited just thinking about it.

Are there pitfalls to this system? Yes, but those are of your own making. A budget is like an exercise program, only as good as YOU. And it can get hard saying no or putting things back. I get that. All the great things in life require work, effort and sacrifice…mental effort included. But, there are also GREAT gains. Not just in your present but in your future as well.

Questions I have been asked:

• Can you ‘borrow’ form one envelope to cover the spending of another?
  
  • Sure. But be aware of 3 things. 1. Chances are you will never pay back what you ‘borrowed.’ 2. Once you begin it is a slippery slope and the system will not work for you. 3. The envelope that you ‘borrowed’ from is now short.
    
    • If you find that one envelope seems to always have extra and another is always short, go ahead and adjust your budget.
• What if my kids need something for school and my envelope is empty?
  
  • My kids knew that I was on the Cash Budget System and would ask me if there was money in the envelope. And if the answer was no…it was no.
• How do I know what expenses might occur?
  
  • Look at past receipts and bills and try to plan ahead. Don’t forget about your insurance payments and any other that might not occur each month.
  • What if I don’t have enough money each month to buy a reasonable amount of groceries?
    
    • Cut back someplace else. Maybe it’s time to be ruthless with your spending.  Check out ALL of my posts about budgets and money. I am sure you can find a few that resonate with you.

I have used the cash envelope system for years.

When I felt that my spending was a tad out of control I would bring them out. Every time I restarted it was hard. My mind was so used to seeing and buying. I had to kick those ‘thoughts to the curb’ and reprogram my mind.

Little by little I bought less and less. At the end of my last 3 year time period of using the cash envelope system, AFTER ruthlessly cutting back on everything, I was spending $100 less a week! $100 less a week on what I already thought was a bare bones budget! A savings of $5200 a year.  PLUS, I was able to pay off all of our debt except the mortgage. It can be done. I promise you. And, the freedoms that I have right now are beyond description because I made a plan…and stuck to it. You can be free too!

* A ledger has a place for you to record your expenses and your deposits. There is also a place for you to keep a running balance. The envelope above has a ledger…it is upside down. After it is folded it will be on the back of the envelope.

Grab Your FREE Cash Envelopes! 6 Different Patterns!

Would you rather use the cash envelope system online?

I am a big online kind of person. Anything I can do digitally is great for me. Last year I discovered an AMAZING on-line cash budget system.  It is called ‘You Need a Budget.' YNAB for short. Both of my younger kids use it and love it too. Go on…check it out!

And, if you are just sick and tired of money being the biggest challenge in your life let me help you fix it all. You can find out more inside Financial Independence Society.

A few more posts for you to read:

• What is the Purpose of a Budget?
• Benefits of Budgeting
• What is an Emergency Fund?
• Teaching Money to Kids.
• 10 Tips to Manage Your Household Budget
• How to Pay Off Credit Card Debt Fast
• ALL Budgets & Money