I finally broke down and starting using the cash envelope system on April Fool’s Day. And guess what. The system works! It turns out I’ve been a fool for not using it sooner.
I’m starting to think no budget is complete without cash envelopes. Here’s the gist: You put a fixed amount of money in envelopes at the beginning of the month, the beginning of the week or per paycheck. Your preference. When the money’s gone, IT’S GONE. This helps you build self-discipline, stick to a budget and accomplish all of your debt-slaying, wealth-building goals.
After making a budget, I stuffed two envelopes with a combined 2,203¥ (Chinese yuan). Then I worked overtime and earned 360¥ in cash and added that to the mix. For the month, I had a total of 2,563¥, roughly $371 (USD). The envelopes were for fun and incidentals money, and food money (groceries and eating out).
What might happen while using the cash envelope system:
- You better appreciate money. Studies show you spend more when you use a card than you do with cash. When you have cash, you think long and hard about letting those dollar bills go. It’s true! When your envelopes start getting thin, you’ll find ways to do stuff for free or just go without. Even if you know you have money in the bank, it’s out of sight. Your focus is on the cash and how you can keep as much of it as possible.
- You practice delayed gratification. At the beginning of the month, I didn’t want to blow all of my money. So I’ve learned to wait for stuff. I’ve been coveting a bookshelf at IKEA all month. Every time I think about it, I force myself to wait until the end of the month to make sure necessities are taking care of.
- You feel bad about spending on silly stuff. Candy? Nah. You need to buy spinach next week. You actually spend on things you value.
- You stop checking your checking account and use your budget to OK spending. How many of us have a habit of looking at our bank accounts to see if we can afford something? I know I do. But there was no need to check it. The envelopes told me what I could afford. Of course, I checked my balances after I paid rent and energy bill online, but there was no more justifying expenses just because I had money in the bank. I actually didn’t check my account for weeks. I visited the ATM on April 10. I went back on April 21. When I reached in my wallet, I couldn’t find my debit card. I left it in the ATM nearly two weeks ago and HAD NO IDEA because I’d been using cash. That blew my mind! Thank heavens the bank stored away my card when I picked it up on April 24. Crisis: averted.
- You stick to a meal plan and/or clear your pantry. Well, if you have a meal plan, you’ll be more likely to stick to it. You’ll think, “I spent $50 on groceries. I’ll use them up before I eat out or buy something else.”
- You tell your friends “No.”— a lot. At least, in the beginning, you’ll turn down invites because you’ll want to save money for later.
- Your friends, coworkers or relatives might mock you. Don’t worry. They may not understand you at first, but most will get over it and support you. If they don’t, then they’ll get the point when you’ve climbed out of debt or invested tons of money in your IRA.
- You feel guilty for even thinking about using a card or online payment services. In China, everyone uses the Holy Grail of messaging apps called WeChat. The Wallet feature lets you transfer money to friends, pay restaurant and taxi bills, top up your phone data, pay for movie tickets and more. You don’t need cash if you have WeChat. I was in a crappy mood one day and wanted a chocolate muffin from Costa. I reached for my phone to use WeChat Wallet, but my arm started to hurt and my brain said, “NOOOO! USE YOUR CASH ENVELOPE!” A force-field surrounded me! I listened to my body and got 15¥ out of my blue, food envelope. That’s when I knew using the cash envelope system had turned into a habit.
- You cause others to wait in line behind you. Yeah, it happens. A few seconds won’t hurt anybody.
- You are able to help someone when they ask “Hey, do you have change for a fifty?” It’s a great feeling when you can say “Yes, I do!”
- You stick to your budget and have money in the bank at the end of the month. I know you like that, right?! That means you can put more money toward a debt or savings account. If that doesn’t make you want to cash in on this system, I don’t know what will! (Pun intended.)
Want to try it? Here’s how to get started:
- COMMIT! Seriously, you gotta commit to this process and get it in your head that you won’t use plastic for the items allotted for your cash envelopes. It’s fine to put extra cash from one envelope into another, but the system doesn’t allow for you to refill the envelopes with extra cash from the ATM whenever you want. Self-discipline is the name of the game. But if you slip up, don’t get down on yourself. Start over with a fresh commitment.
- Decide which categories in your budget you’d like to reign in. Get cash for those. If you’re like most people, you pay a lot of bills online, so there’s no need to cash out on those. The categories that might cause you the most problems are your variable expenses, like groceries, eating out, clothes, charitable giving, gas for the car and fun money. That’s where cash envelopes come in. Some people even put savings for sinking funds, like the dog’s upcoming vet visit or their semi-annual car payment, in cash envelopes.
- Decide if you want to stuff money in your envelopes for the week, pay period or the whole month. If you see a lot of money in your envelope, you might think you have more than you do and spend it quickly. It helps to break big goals into smaller ones and pace yourself. For example, if you allot $400 for fun money this month, then consider putting $100 in your envelope each week over four weeks. You will guard that $100 with your life because you can’t see the other $300.
- Remove your cards from your wallet. In the beginning, consider putting your debit card or credit cards in a safe place that’s out of sight. When you reach for them out of habit, you’ll be directed toward your cash envelope. Remove your card numbers from online shopping sites if you must. Having the cash envelopes isn’t enough. You must commit and mitigate potential setbacks by thinking ahead.
I hope this helps. Let me know how your cash envelope adventure goes.
How have cash envelopes worked for you? Leave your tips below.