Cash Envelopes
What are cash envelopes?
They are another method of budgeting where you withdraw cash from your bank account. This is normally on a monthly basis after you receive your monthly pay or on whatever frequency you are paid. The idea is then to split the withdrawn cash into specifically categorised envelopes that you will have chosen as part of your budget planning. These envelopes will then have the category i.e. food shopping etc along with the amount that is inside the envelope. Normally it is one category per envelope to keep it simple. This is very similar to the Jam Jar method.
Using your cash envelopes
To get started with using cash envelopes for budgeting, it normally begins as soon as you receive your monthly salary. But before starting you need to determine your budget if you haven’t done so.
This means that after all of your expenses or monthly bills that are paid direct from your account, you need to split the remaining money. To do this the money is split into categories such as food, restaurants, planned days out, fuel, clothing etc. Make sure that the categories are tailored to you, and then go ahead and make as many envelope categories as you need. You can always go back and tweak the categories the following month if you need to make any changes.
Most people use cash envelopes for day to day spending, but there are other one-off examples.
One-Off Use Cases
You can also use an envelope system for ‘emergency’ cash- this could be an envelope that you keep stored safely that holds money for unexpected expenses. This could be things like when a household appliance breaks down and you need a replacement. If you don’t trust yourself not to spend any spare money in a bank account, this might be a good way of making sure you always have a back up plan.
Envelopes can also be used when you are on holiday to help keep your spending under control. On holiday you might use categories such as restaurants, taxis etc to ensure that you come in on budget.
Cash envelopes are also a good way to accumulate money for yearly seasonal events such as Easter or Christmas. There are many forms of saving for Christmas, some people use food stamps or use specific saving companies, where you can put one envelope aside and build up cash slowly in the months leading up to the specific day. You won’t notice small amounts coming out of your account as much every month, but you would notice a lump sum coming out.
My Thoughts
Personally I used to use this method before digital applications catered for spend tracking. I feel it caters in the same way with saving pots separate to your main account now being available. But those that don’t like using the digital apps may prefer this method.
If you think this form of budgeting is ideal for you then go get some envelopes and begin!