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Cash Envelope System - Mastering Your Finances In A Few Easy Steps

Last modified: Sep 29, 2022

Budgeting can be tricky to organize; however, many people rave about the cash envelope system as an effective approach to track your savings and expenses, allowing you complete control of your finances.

So how do you get started? Well, keep reading this article to find out how you can make the most out of the cash envelope system. 

What Is the Cash Envelope System?

Finance guru Dave Ramsey made this method popular when describing the old-fashioned envelope system of household budgeting. Instead of paying by card and forgetting about it, you can create cash envelope system categories. Then, write the category on an envelope.       

Essentially, the cash envelope system for beginners can prevent overspending. For example, suppose you often go overboard for grocery shopping. By creating your grocery envelope, you tuck the specific cash budget inside. Then, you simply use the cash inside for all grocery-related expenses.            

The best part about the system is that it lets you itemize your budget into individual and manageable categories. Ideally, you want to include all relevant budget categories that best suit you. 

Some of the most helpful budget categories include:               

  • Transportation 
  • Housing
  • Food and grocery
  • Health and medicine costs
  • Childcare/pet care
  • Entertainment and leisure

Understandably, categories vary depending on your needs. So to make sure you divide your budget efficiently, we recommend using a cash envelope system worksheet. Many printable cash envelope system templates include calculation examples to help fill your envelope accordingly.                 

So, where do you find the right envelope for the job? While you can use standard envelopes, you can also find them as part of organizer stationery sets; you just need to search cash envelope system on Amazon or cash envelope system wallet

However, if you prefer a virtual envelope system, you can find plenty of practical envelope system app available on Androids or iPhones.        

How Does It Work?  

What is the Dave Ramsey cash envelope system's main feature? Using the cash envelope system brings a new element to budgeting. Your budget becomes visibly tangible, as you can use envelopes to keep track of your expenses.    

If you’re wondering how to do the cash envelope system, you first need to find where to buy a cash envelope system. Physical envelopes arranged in a portable cash envelope system binder or a cash envelope wallet are the best way to keep your budget on track. 

The next part is the cash envelope categories, which depend on your personal needs. Every household budget is different, so it can take a little trial and error to figure out the right categories.   

After that, start with creating a successful budget. You can use your previous months' budget to determine how much money you typically use for each category.    

After a while, you will perfect your cash stuffing strategy. Then, when you get the hang of it, you can save a ton of money with smart envelopes. In 2020, many Australians used the system to increase savings.               

The last step is to label 50 to 100 envelopes from $1 to $50 or $100, depending on your budget. You can randomly choose two envelopes every week to place your saved cash. So, if you happen to save $84, you can use the $4 and $80 envelopes. At the end of the year, you could save as much as $5,050 with the 100 cash envelope challenge.         


What Are the Pros and Cons of the Envelope System?

The benefits of the envelope systems are pretty obvious: 

  • It makes it easier to save money by introducing good tracking habits.
  • It makes you aware of your spending habits (so you can address problems).
  • You can easily swap cash between categories for unexpected savings or expenses. 
  • You can save money through the envelope challenge.   

However, you should be aware there are some disadvantages of envelope budgeting. Understanding the shortcomings of the cash envelope system can ensure you avoid traps. The main two envelope system disadvantages include using a cash system in primarily cash-free economy. Although, you can always use a card and then subtract the amount accordingly in your envelope.                           

Additionally, preparing and maintaining the system can be time-consuming and inconvenient. You need to ensure you can fill your envelopes with the right amount of cash every month, which can require several trips to the ATM.  

How to Use the Cash Envelope System

Creating your budget is the first and most important step if you wish to make the most of the cash envelope budgeting system. You can refer to previous expenses to identify your main and recurring budget categories. It's also the perfect opportunity to review your costs to reduce overspending habits. In addition, you can identify variable expenses, which you can cover by moving money between your envelopes.   

Then, you can use the information to determine your envelope categories and how much to use in each of them. Make a point to consider your income after taxes to avoid bad surprises. 

Finally, fill your envelopes with cash. It's important to remember that your budget is constantly a work in progress. As new expenses or income sources arise, you can adjust accordingly. 

In conclusion, the cash envelope system can be an effective financial strategy for households trying to keep track of their budgets. The tactile cash approach provides a complete overview of your expenses and savings and can build good money habits.

Policy Advice is a website devoted to helping everyday people make, save, and grow money. While our team is comprised of personal finance pros with various areas of expertise, nothing can replace professional financial, tax, or legal advice.

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