You could take money from other envelopes, but that is highly discouraged. So, if you take one envelope with you to shop for groceries and you spend the $500, you won’t be able to spend any more money, which helps keep your spending on track. The whole idea is that if you only put $500 in the food envelope, you won’t spend more than $500 on food for the month. Second, you put a certain amount of money into each envelope to spend on that category. You have the power to choose where your money is going. For example, your other expenses can include entertainment, restaurants (which shouldn’t be counted in the grocery category of your budget), medical, and travel. In general, that includes housing, transportation, food, and other things you spend money on (expenses). The first step of the cash envelope system is to determine your spending categories. Recommended Reading: How to Create a Budget in 3 Simple Steps That being said, the cash envelope system is probably the most inflexible budgeting system, which has its pros and cons, but we’ll get to that. Instead, your budget helps you control where your money goes so you don’t spend it on things that you don’t value. Let’s be clear, your income is what is restricting you, not your budget. But, unlike most diets, when done correctly, budgets work.Ī budget is not made to restrict you but to help you spend your money with intention. It has the same negative connotation of restriction and disappointment as a diet. People go out of their way to avoid using it. The word “ budget ” has become a dirty word. While that definition may not sound simple, it is very simple to do.īut first, since this is a budgeting method, it is important to know what a budget is. The cash envelope system is a type of budget where you cash your paycheck and divide the money into labeled envelopes to pre-determine how much you will allow yourself to spend on each category. Even if you haven’t heard of using envelopes (do people still own those?), you probably know the concept. We always ask for a receipt so that we don’t forget this step.If you’ve tried to get control of your finances, then you have heard of the Cash Envelope System. Update your app after every purchase and put what you’ve spent into the proper category. The only way this method works is if you actually track your spending throughout the month. Personally, we use Goodbudget, but you should use whatever app works best for you! Step #4: Track Your Spending If you don’t already have one, we wrote a comparison of the two most popular choices to help you out. Once your money is in place you’ll need to add your categories to your digital envelope app of choice. Step #3: Add Categories To Your Digital Envelope App Each month, we calculate exactly how much money is needed to pay for all of our bills and budget categories and we add it to our joint bank account.įrom here, you can use the debit card linked to the account or use a rewards credit card (that you pay off after each purchase) to do all of your spending throughout the month. We use a separate checking account for all of our budgeting needs. Read: How To Create A Monthly Budget In Less Than 20 Minutes Step #2: Transfer $$$ To Your Budget Account The categories for your digital envelopes will come straight from your budget. In order to use the digital envelope system, you’ll have to create a monthly budget first. How Does The Digital Envelope System Work? Step #1: Make a Budget This realization led us to search for a digital envelope system that would work for us. This is a good idea in theory, but how many times have you been driving home and needed to stop for gas? If you left all of your money at home, then you’ll need to hope, wish, and pray that you can get home, get money and get to a gas station in time. The argument we normally hear is that you can solve these problems by only carrying the portion of your cash envelope that you plan to spend that day. You could drop your wallet somewhere and lose your entire budget! (We’re both prone to losing things so this was very possible).Both people need to have access to the cash, which isn’t possible if you aren’t always together.It’s a safety hazard in our view because you’ve got to open up your little cash envelope wallet every time you pay for something.We thought it would be a good idea for us, but it didn’t work out for a variety of reasons: Neither of us particularly liked the idea of carrying around our whole budget in cash! I guess some people are fine with it but that was an idea we could not get behind. We tried using the cash envelope system for all of about one week. Blame our love for making things easier than they already are or our disdain for carrying cash.Įither way, the digital envelope method really works for us. The cash envelope budget is a favorite for many people but we found that we prefer a digital version instead.
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