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The Envelope System Experiment: Balancing Our Budget

Budgeting with the Envelope Method

I’m moving towards budgeting with cash, known as the “envelope system.” I’ve never used cash to pay for fluctuating expenses before, and I’m not used to having it around on a daily basis. I have used Mint.com in the past to track how much of our budget is still available for certain items throughout the month.

Balance the Budget

Duh! A no-brainer, I know. But you can’t have a deficit budget when you’re using cash. Aside from our fixed expenses, like our mortgage, student loan payments, mobile phones, a bus pass, and utilities, our shoestring budget for July looks like this:

Groceries $500.00
Gas $60.00
Toiletries $30.00
Baby supplies $20.00
Entertainment $20.00
Dry Cleaning $10.00
Hair $20.00
Gifts $60.00
TOTAL $720.00

There are some one-time expenses in there — a haircut for Little Stapler, some dry cleaning that I’ve been meaning to drop off, and three birthdays.

Withdraw Money

If you have a cash cushion, withdrawing enough money for your expenses for the entire month isn’t difficult. But for those who are living paycheck to paycheck, an entire months’ spending is not waiting in the checking account — start by withdrawing on a weekly basis.

We received the check we’d been waiting for, so we have the cash cushion as soon as it clears the bank. At that point, I’ll go to the bank and withdraw $760. I’m not sure that an ATM will let me withdraw that much at once. If not, I’ll go back again the next day.

For us, there are still some expenses that I won’t pay for with cash because they’re cheaper online. For July, that includes a big box of Huggies baby wipes from Amazon because they were offering a $10 coupon, so I got it for $3.63. I also ordered my nieces’ birthday presents online because I wouldn’t have to pay for shipping.

Everything else will be cash.

Label Envelopes and Fill with Cash

I labelled an envelope for each budget item, and put the one-time expenses (haircut and dry cleaning) in one envelope. This way, I can re-use the envelopes each month. Then I stuffed each with a corresponding amount of cash.

Groceries $500.00
Gas $60.00
Toiletries $30.00
Baby supplies $16.07
Entertainment $20.00
 One-Time $30.00
TOTAL $656.07

(The baby supplies envelope doesn’t include what I already spent on amazon)

Only Spend Money from the Envelopes

This is obviously the honor system. Dave Ramsey won’t knock down your door if you charge something to a credit card. But it’s important to stick to the cash, in order to stay on budget.

If you did have to charge something, withdraw the cash from the appropriate envelope anyway — and save it for the next month. The challenge is not to see if you can go without using a credit card. The challenge is to stay within your budget.

The biggest challenge would be to have cash left over for the next month!

Ready to get started? Who’s with me? 

Disease Called Debt

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  1. I really like using cash for groceries and “incidentals” like takeout coffee, but for everything else I find it too cumbersome. I do use YNAB though, which operates a little bit like a virtual envelope system if you use it correctly. I’m glad you’re finding this useful for getting things under control! It is SO easy to overspend the second I stop being mindful.

  2. I think that since my credit is in such good shape, I’d be sad to lose all those point for rewards travel. But I think cash is a great way to get started budgeting.

    1. I hear ya. We get great rewards from our AmEx Blue Cash Rewards — we use them for statement credits and I feel like we’re redeeming $50 a month. Of course, at this point, we’ve paid $50/month in finance charges. So, unfortunately it’s evened out.

  3. I think using the system is a great way to budget your money. When I first started to budget, I used the envelope system (it was really mason jars) but once I got better at budgeting my money I moved to just using my credit card for all of my purchases. I use the rewards points I get for different gift cards or travel.

    1. I’m a credit card travel hacker myself, so moving away from the rewards points stinks, but I kind of feel like my credit card privileges should be taken away until I’ve earned them back.

  4. Looks like you’re off to a great start with this Rebecca! I only like to pay with cash, I hardly ever use my debit card and I haven’t used a credit card in around 3 years now. Not great for my credit scoring but at the moment I don’t care. Cash works!

    1. I get nervous carrying around a bunch of cash, so I have to plan ahead when I go grocery shopping. It’s probably better that way; I avoid shopping when I’m hungry, which is always a bad idea.

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