Have you ever felt late to the game of paying off debt and money management?Well, developing cash envelope system categories to increase savings with cash is a strategy I recently stumbled upon.
Women using plastic binders to store their cash on social media intrigued me after scrolling through my feed.
I thought the strategy was silly and ineffective until I learned more about what it was.
Cash stuffing is a personal budgeting method that requires you to divide your money into different categories to manage your expenses. I researched the cash envelope system for beginners and I’ve been using the method ever since.
Now, you’re probably wondering what’s the point of taking out cash every month when you have a credit and debit card you can track and run up?
That’s actually the problem, goal friends. Swiping your credit card and making purchases online can easily get out of hand when you’re trying to save money every month.
Have you ever went into a store to buy just a few items, but leave with a cart full? Was your monthly budget on your mind when you purchased those throw pillows at Target, or spent a round on drinks for your friends?
Probably not. But the funds on the credit card were there.
When you have a limited amount of cash in hand, it’s impossible to overspend.
Saving has always been a priority for me, but getting rid of debt always felt like a huge undertaking. It took a long time for me to sit down and actually create a monthly budget to track my expenses.
I was putting 30-40% of my paycheck into savings and investments. Then spent the rest of my bi-weekly check on any and everything I wanted.
That doesn’t sound too bad, right? …Wrong!
There was no intention of my savings strategy. I spent way too much in one category, and after shopping, I didn’t have enough money leftover to spend for anything else.
Before creating cash envelope system categories, I put my hand into the savings jar every month to purchase additional things that I wanted.
Talk about bad habits! The last thing you want to do is add, then subtract from your monthly savings. By the end of the year, I rarely met my savings goals, and I discovered the reason.
No strategy reaps no reward. But we all know we can accomplish everything with a plan – financial freedom included.
So, for those who end up in the red of their finances each month, controlling your spending habits with cash envelope system categories may be for you.
What is a cash envelope system?
The cash envelope system requires you to limit spending, and only deduct cash from your variable budget categories using envelopes. Once the cash in your envelope is gone, you can’t spend anymore money in that budget category for the month.
Yes, it’s as simple as that!
What is the cash envelope system for dummies?
The cash stuffing method isn’t as daunting as it may sound, I promise. Maybe they will eventually come up with a less intimidating name, but until then check out the easy 5 step cash envelope system guide I’ve detailed below!
- Write out your monthly expenses and subtract the amount you need for bills (mortgage, rent, car notes, utilities, etc).
- Put a percentage of your paycheck into savings.
- Identify and list variable budget categories and assign a dollar amount to each.
- Withdraw the total amount leftover from the bank or atm in cash.
- Label each envelope with your categories and place the corresponding cash in separate envelopes.
- Spend from the designated envelopes whenever you need to make a purchase. Once the envelope is empty, refrain from spending in that category for the month.
- Track your spending and update the envelopes accordingly. This helps monitor how much money you have left in each category. The more leftover, the more money you save.
The cash envelope system is a visual and tactile way to manage your spending. It also helps you to stay within your predetermined budget for each category rather than swiping your coins away.
I’ve simplified the cash stuffing method for beginner budgetnistas, which should make it easy to follow.
However, I will say the results may vary.
The largest percentage of your paycheck should go to your savings, but this isn’t always an option for everyone.
Bills become overdue. Emergencies pop-up. Additional expenses for personal and family matters are unpredictable.
This makes creating specific cash envelope system categories necessary. What’s even better is that the money left over from your envelopes can go right back into your savings. If that’s not a win, I don’t know what is.
Within 90 days, results from the cash stuffing method should begin flowing in.
How much has your savings fund increased?
Remember, the goal isn’t to use all the money you’ve designated to your cash envelope system categories. It’s a financial safety net system that promotes saving instead of overspending.
How do you organize cash envelopes?
Organizing your cash envelopes will come down to your lifestyle, budget, and spending habits.
As a beginner budgetnista, I recommend you start with 10 -15 cash envelope system categories.
- What’s your lifestyle like?
- Are you on a tight budget?
- Who are you responsible for financially?
- Do you have any sinking funds?
These are the questions you need to ask yourself when creating your cash stuffing envelopes. You may have an entire family to provide for, a house, or car that may require repair.
Or maybe you like to shop and plan solo weekend getaways at the last minute? All these things require a form of budgeting.
Some of the most common budget categories for beginners include:
- Bills
- Insurance
- Debt
- Utilities
- Children
- Groceries
- Transportation
- Fun and Entertainment
- Pet Care
- Home
- Personal
- Subscriptions
- Donations
- Gifts
- Dining Out
Use the budget categories listed above to get a head start on developing your own cash envelope system categories. Think of any expenses you may use in each category and write them down.
Bills, insurance, debt, and utilities are all expenses that will subtract from your income. They don’t require an envelope, but if you like to budget for future months, it doesn’t hurt to set aside extra funds for your monthly bills.
Children need money for school trips, sports activity fees, lunches, daycare, allowance, babysitters, and the list goes on and on. One envelope for this category will suffice.
What other monthly expenses do you need to budget for?
For personal, it may be beauty, gym memberships, events, medications, etc. Stuff the amount of cash you think you’ll need for the month into this envelope.
Transportation is another common cash envelope category. We all need to get from A to B during the week. Whether it’s by car, train, or bus, it will require money to get to our destinations and back.
Gas, bus fare, or monthly train tickets can get more and more expensive each year. It’s important to have enough money stashed to hold you over until the next pay period.
Take this approach with each variable budget category and identify how much you need to cover your monthly expenses.
Don’t make organizing your cash envelopes an arduous task. Beginners should keep things simple the first 12 months of implementing the cash envelope system.
With enough practice and time to see your savings funds grow, by next year, you’ll likely be a pro.
Depending on the month, you can create envelopes for specific events, holidays, or personal debt that you would like to save for.
- Car Maintenance
- Education
- Memberships
- Investments
- Household
- Clothing
- Travel
- Charity
- Holidays
- Birthdays
- Coffee
- Self Care
- Date Night
- Student Loans
- Credit Card Debt
- Hobbies
- Back To School
Remember to allocate a dollar amount that’s manageable for your budget as a beginner as well.
A range between $50 – $200, depending on your spending habits for each category, is good enough to start. Let’s keep the money ranges as small as possible budgetnistas.
Happy cash stuffing gals!
What are the downsides of the cash envelope system?
The cash envelope system requires discipline.
Cash stuffing is beneficial only if you can refrain from putting your hands inside of your envelope piggy banks.
Most people use saving strategies that don’t deal with cash. Their savings funds aren’t readily available and not within reach, unlike those following the cash envelope system.
When the money you’re saving is out of sight and out of mind, there is less temptation to withdraw from it.
Storing cash in plastic cash envelopes rather than putting it in a bank to protect it is also a risk.
There’s a chance your hard earned cash may get stolen or lost if it’s not stored away safely.
Leaving your cash envelope binder out in open living spaces, or carrying it around in your handbag, might not be the best idea. It’s a little too inviting to family and convenient for strangers to access.
Last but not least, some people just don’t prefer to use cash.
They don’t want to carry it around, go through the hassle of withdrawing it from the bank, and they find it difficult to track.
Because of this, many people opt to follow the digital cash envelope system.
Some minimalists who want to limit their access to cash often go this route.
The gist of cash stuffing is to see a significant increase in your savings account overtime. After a few months of saving, you can still use a traditional bank account.
Once the envelopes have met the threshold you’ve set for the month. Remove the cash and deposit it into a high-yield savings account.
With the right plan in place, saving a substantial amount of money is attainable and you can have fun while doing so, too.
The cash envelope system for beginners is a starter kit to wealth. But not everyone will have extra funds leftover each pay period to follow the system regularly, and that’s okay.
You don’t have to add to your cash envelope balance every paycheck, but try to save what you can at least once a month.
Check back 90-days later and see if you’ve made a difference.
Most Americans have debt they are working to pay off. Why not approach your savings goals strategically by increasing your income as well?
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Meg - Planner Me Up
I teach entrepreneurs how to simplify their life and business with less + own their time and maximize productivity towards their personal and monetary goals.
