Money Saving Monday: How to use cash envelopes

If you have been around this blog for a while, you know that I love to talk about budgeting and cash envelopes and ALLLL things thrifty, but wanna know a secret…I DO NOT CARRY HUNDREDS OF DOLLARS OF CASH AROUND WITH ME WHEREVER I GO!! This is the NUMBER ONE question I get asked about a cash envelope system…so today I am going to tell you HOW to use cash envelopes WITHOUT carrying tons of cash.

How to use cash envelopes without carrying cash…

Start off small.

If you are just beginning your cash budget journey, you do not have to jump into the deep end. Instead of using cash envelopes for ALL categories in your budget, just pick a few to focus on. Budgeting is a marathon, not a sprint. Start off small. I promise it will still make a big difference. You could continue purchasing with your debit card as usual, but implement sinking funds to help prepare for upcoming expenses. OR you could use your debit card while tracking your spending, but use envelopes for your fun money categories like eating out, clothes, personal care, hair, makeup, date night, etc. This will help to reign in your WANTS spending. You can still make changes to your NEEDS spending by tracking each transaction and setting budget limits, but you will have a set amount of cash for your “fun money” and when it is gone, you have to wait until next month.

Leave your cash at home.

You do not need to carry ALL of your cash or ALL of your envelopes with you at all times. If you are headed to run errands and you are only going to the Dr. and Walmart, grab your grocery envelope and your medical envelope, and leave the rest at home. This will also help you to stay away from unnecessary spending. If you don’t have your eating out envelope with you, you will not be tempted to stop for coffee or a quick snack.

Honestly using cash is MORE of a head trick than a budget tip. If you can train your mind to become more minimalistic and get used to saying NO, then your spending habits will take a turn VERY quickly. If your BRAIN knows that you do not have your CLOTHING envelope and you see something you wanna buy at Target. You will have to make a hard decision. Instead of mindlessly shopping, you will be making conscious decisions about how to spend each dollar….because NOBODY wants to get to the checkout and not have enough cash to buy everything in the cart. You will also get more used to WAITING FOR LATER, which in this AMAZON world we live in, is NOT something many of use are good at.

Tip: You can cut back on impulse spending by leaving your SUPER trigger categories at home. For example, if you have a hard time saying no in Target (who doesn’t), only take your NEED money with you. For example, if you cannot say no to holiday decor in the Target Dollar Spot, don’t take your decor envelope with you on every trip to Target. Especially if you are in a season where you are trying to save or need to pay off debt. If you are paying off debt, just remember, this season will not last forever. Someday soon you will have that card paid off and you can then be a little more free with your cash envelopes. But if you are REALLY getting serious about debt payoff or filling your emergency fund, leave those trigger envelopes at home.

Only use cash for trouble areas

Only YOU can know where you struggle in your spending, so this will be a very personal decision. Where do you want to see the most difference in your budget?? Groceries?? Clothes?? Eating out?? Pick 1 or 2 categories that you NEED to focus on to decrease your spending and start there. Then you can track your spending in your trouble areas, but keep the rest of your cash in the bank.

For example, I will NEVER pay for gas with cash. It is WAY too easy to pay at the pump and go. PLUS, I am not out spending money willy nilly on gas. Gas is just something I buy when I need it and I cannot do without it. So it is a part of my budget, but I am in no way trying to decrease my gas spending. SOOOO it just makes sense to keep that money in the bank and pay for gas with my debit card.

We also VERY rarely eat out, especially with Covid restrictions still going strong in Washington. I do not tend to overspend on eating out. We occasionally grab fast food when the kids have appointments and once in a while I will grab food on my way home from work. But it is NOT an area where I waste too much money. So for ME, eating out is not a category where I find it necessary to carry cash. BUT for you, eating out might be where half of your monthly budget currently goes. In that case, it might be the ONE category where you NEED to set some boundaries. Find out how much you can afford to spend on eating out each month, pull that amount out in cash, and then eat out until the money runs dry. Then put on your chef hat for the rest of the month and get cooking.

Remember, budgeting is just telling your money where to go. You are deciding HOW much to spend on what. So if you have tracked your spending and KNOW which areas you want to cut spending in, just focus on THOSE areas. Mine are home decor, holiday decor, groceries and Target. If I set a reasonable budget for home decor, pull out that amount of money in cash each month, and only spend that amount, I have successfully cut my unnecessary spending. It doesn’t have to be all about restriction. I still buy plenty of home decor, trust me. It just stops those impulse buys, AND it makes me more accountable for each item I purchase. I have to REALLY love something before I will pull out a $50 bill. BUT I will mindlessly swipe my card ALL DAY LONG!!!

TIP: Use the largest bills you feel comfortable carrying with you. It is all mind over matter, but I will hand over two twenties WAY quicker than I will pull out a fifty. And breaking a hundred…PAINFUL!!! BUT if I have a stack of random fives and tens that add up to ninety bucks…I will see that as chump change…haha. It is so silly, but trust me, it works!!

Use an app.

There are lots of apps that will let you divide your cash into virtual envelopes while still in the bank. I have a WHOLE post coming soon about this, but it is a great alternative to cash, while still having the same great benefits.

Track your spending.

Honestly, just knowing where your money goes is 80 percent of the battle. I would start by tracking all spending for one month. You can grab my free printable spending tracker HERE. Then go through your tracker and find any trouble areas and categories you think you can cut. Once you know where you have been wasting your money, set your budget. Pull in those purse strings and REALLY get serious about your goals for each category. Then continue tracking. Once a category has reached the end of its budget, cut that spending off until next month. It requires more self control to attempt to cut spending ONLY by tracking, but it can be done. The key is to STOP spending when you reach the end of your budgeted money for each category.

Use your cash envelopes as a debit card tracker.

Ok. So this one is ALLLL about training your mind to divide up expenses into categories and stick to your budget. BUT you can use your cash envelopes JUST like you would if you were paying with cash, except you are using your debit card instead.

SOOO you would set up your categories, set your limits, but instead of stuffing your envelopes with cash, you would leave your money in the bank. Then when you swipe your card, you would write the transaction on your envelope and subtract that money from your allotted budget. Then just put the receipt into the envelope. BUT you still have to STOP SPENDING WHEN THE BUDGET RUNS OUT. That is the hard part.

For example, say you set a clothes budget for the month of $50. You go to Target and find a sweater for $24 and then go to the mall and find a pair of shoes for $32. If you only have $26 dollars left in your clothing budget, you need to make the decision. Take back the sweater and buy the shoes. Or keep the $26 in your budget until next month. Then when you add another $50 to your clothing budget, head back and purchase the shoes. BUTTTT let’s say you REALLY want both. So you check your other categories and see that you still have $25 in your eating out envelope. You can subtract $5 from your eating out money, buy the shoes and then limit your eating out to the $20 now left in your envelope. Budgeting is NOT about always saying no, it is about knowing where your dollars go and eliminating mindless spending. If you have not gone over your clothing budget OR your eating out budget, and still get to purchase the things you want, that is a budgeting win!!!!

What NOT to do when using cash envelopes…

1. Carry all of your cash with you everywhere you go. It is just too scary to carry around a bunch of cash. One mistake and you have lost a month’s worth of money. Even if you are ALL in for cash envelopes and have 7-10 categories, there is no need to carry tons of cash. Divide your BIG money envelopes up by weekly amounts. For example, if you have a $600 per month grocery budget, only take $200 to the grocery store for your weekly shopping trip. Leave the rest either in the bank or at home.
2. DO NOT pull out your entire paycheck and keep it around in cash. Again, it is too risky. In the beginning it is so tempting to go ALL in, but then when you see your low bank account, you might panic and then give up. Even though you have $1000 in cash in your desk drawer.
3. Don’t get discouraged. You did not get INTO financial problems in one day and you WILL NOT get out in one day…week…or month. Remember it is a marathon. You cannot fill your emergency fund JUST by cutting back on your Starbucks for one month. It will take a while before each dollar saved turns into $100 dollars…and then $1000 dollars. Try making ONE change…then add in another…until you are managing your money like a champ. It takes time. And you WILL mess up!! Give yourself grace.
4. Do not constantly borrow from Peter to pay Paul. If you are forever borrowing from one envelope to spend on something else, you need to reset your budget. Add more to categories you are borrowing for and subtract from others. If not, you will find yourself going over budget because you are NOT limiting your spending, you are just constantly fulfilling your wants by borrowing from your needs. It doesn’t work in the end…promise. Borrowing occasionally is one thing, but always pulling from one category to another will NOT keep you on track.

I hope that helps calm your fears. I am not walking around with a purse full of cash…although…a purse pull of cash sounds kind of fun…haha. Happy Budgeting friends!! Jessica

If you are just starting on your budgeting journey, you will want to head over HERE and see my WHY for budget…and HERE to see how to save on groceries…and HERE for 15 ways to find more money in your budget. ANDDDD of course you will want to head HERE for the cutest printable cash envelopes.

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