I am a HUGE fan of cash envelopes because they are a key reason that Jenn and I started winning with our finances.
Here is how we use cash envelopes:
Every month BEFORE the money comes in, Jenn and I work together to spend all of our money on paper. We FORCE our money to behave by making it follow the INCOME – OUTGO = EXACTLY ZERO formula. This usually takes less than 20 minutes per month!!! After we have completed the budget, we figure out how much needs pulled out for the cash envelopes.
How do we decide how much to put in cash envelopes? Well, it is something that has been developed over time. We have learned that there are certain categories that we are more likely to impulse on. These categories are where we are quite likely to overspend if we use the debit card. As a result, we pull out the amount of cash that we budgeted and put it into a labeled envelope.
Here are some categories that Jenn and I use cash envelopes for (because these are categories we could overspend otherwise):
Think about these categories for a minute. It is pretty easy to go crazy and overspend these categories isn't it?! By using cash envelopes, we KNOW FOR SURE that we will NOT overspend. We will only spend the amount we budgeted!
Guess what? I have never overspent a cash envelope in 4 years!!! If I were using a debit card, I can guarantee you that I would have overspent at least 24 of the past 48 months!!! Why? The debit card doesn't allow me to keep a running amount of how much I have left to spend for each category. The cash envelopes? – Yeah, I can just open it up and count. Presto! I immediately know how much I have left for the month!
Try it! If you are nervous, try just one envelope – GROCERIES!!! It can quite possibly change your life!