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Cash Envelope System: Get Started With The Ultimate Guide
Here’s a crazy stat:
Two-thirds of Americans don’t have a budget.
That means that 218 million people are spending their money will-nilly with no game plan.
Two hundred and eighteen million people who are not financially successful.
Because, let’s face it:
Without a budget, you are highly unlikely to be able to afford your lifestyle, pay down debt, or save money.
Are you one of these people?
It’s ok if you are. I was too.
It gets better, though:
Creating a budget (or a plan) for your money is hella easy.
What isn’t always easy is sticking to your budget.
However, when you use a budgeting method, such as the 50/30/20 budget method, you can significantly increase your chances of sticking to a budget.
And, when you stick to a budget, you’ll be able to:
- afford your lifestyle
- pay down debt (and stay out of debt)
- save more money
- free up money for personal use
That sounds pretty sweet, right?
I know. It totally does.
So, let’s get started.
- How To Start Budgeting (When You Don’t Know Where To Start)
- The 5 Best Budgeting Methods To Get Your Financial Sh!t Together
- How To Automate Your Budget So You Never Have To Budget Again
- Budget-By-Paycheck: Everything You Need To Know To Get Started
- How To Use A Zero-Based Budget
- How To Cut Costs When You’re Broke AF
Why You Definitely Need A Budget
Learning how to budget is super crucial if you want to stop living paycheck to paycheck and reach your financial goals.
But, budgeting can be the worst, so people tend to avoid it. (Two-thirds of Americans to be exact!)
Here’s the deal, though:
Not budgeting is a huge, huge mistake.
Because, if there is one thing that you should keep organized in your life, it is your money.
So, why do so many people avoid budgeting their hard-earned cash?
- budgeting is can be time-consuming
- budgeting is can be stressful
See, money is often the cause of stress, tension, and arguments between partners. And, money controls most aspects of our lives, leaving us feeling like we often do not have enough.
So, why even bother with it all, right?
Wrong, wrong, wrong.
You 100% need a budget, regardless of how ‘little’ or ‘big’ your income is.
Because, here’s the deal:
Without a proper budget (and understanding of your finances), you will never, and I mean never, feel satisfied with your income and standard of living.
A budget is necessary if you want to:
- afford your lifestyle
- stop fighting about money
- pay off debt (and stay out of debt)
- save money
So, let’s dive in and see if a cash envelope system is right for you!
How To Set Up A Cash Envelope System
Who Is A Cash Envelope System Good For?
A cash envelope system of budgeting is awesome for people who have poor spending habits and who are unfamiliar with budgeting.
Wanna know why?
When you have and spend physical cash, you’re more likely to connect to the money flowing in and out of your hands.
I mean, it’s pretty damn easy to go a little crazy at Target when you’re swiping
But, with a cash envelope system, you can count the money you have, track the money you’ve spent, and become conscientious of your spending habits.
There are a few downsides to the cash envelope system, though.
You’ve gotta use cash. Meaning you have to go to the bank and get cash every time you are paid.
And, what about all those bills you pay online every month? What’s the deal with those expenses when using a cash envelope system?
I hear ya. Here’s the deal:
I highly suggest only using a cash envelope system for the ‘wants’ part of your budget.
Things like groceries, transportation costs, entertainment, personal spending, etc.
Yes, you will have to stop at your local ATM every time you get paid, but it’s worth it!
Step 1: Determine Your Why Factor
We’ve already established this:
Every single person needs a budget if they want to be financially successful.
This will be different for everybody, and you can determine your why factor by asking yourself these questions:
- What will budgeting help me do?
- How will budgeting make my life simpler?
You might want to start budgeting to stop living paycheck to paycheck, to pay off debt, or to save more money.
Because let’s be honest:
If you do not have a plan for your money, how are you going to afford your dream life?
Here’s a hint:
You won’t be able to.
So, once you establish the reason you want to start budgeting, I urge you to write it down!
Because writing it down makes it real and it reminds you of why you started in the first place (if/when budgeting gets tough).
Step 2: Collect Your Financial Information
Want to know the best part about this step:
It’s hella simple and shouldn’t take you much time at all.
You’re simply going to gather up your financial information. (i.e., pay stubs and bills)
- a months worth of pay stubs (and your partners, if applicable)
- all the bills you currently pay, their individual costs, and when they’re due
- an average of monthly variable expenses
And that’s all folks!
Step 3: Calculate Your Income + Expenses
The start of every budget begins by calculating your income and expenses.
It is a crucial step to creating a budget that works because:
If you’ve never budgeted before, you probably don’t have a firm understanding of your finances.
Therefore, you’re probably spending more than you can afford (or not spending your money efficiently).
So, to determine if you need to cut back on expenses before you start budgeting (for better budgeting success) calculate your income and expenses now.
Using the information you gathered during step two, calculate your total monthly income (after taxes) from all sources.
Once you know exactly how much money you earn each month, you can determine if you are living within or beyond your means.
For the purposes of this post, let’s pretend my total monthly income is $4,500 and I am paid weekly.
(Monthly Income Organizer & Financial Evaluation available in the Budget Boss Planner)
Next, you’ll want to calculate your total monthly expenses.
For the purposes of your cash envelope system, break your expenses into two categories:
1. Fixed Expenses
2. Variable Expenses (what you’ll be using cash for!)
If you aren’t sure what your monthly expenses are, begin tracking your spending in a financial planner to calculate an average at the end of the month.
(Monthly Expense Organizer available in the Budget Boss Planner)
For the purposes of this post, let’s pretend my fixed expenses total $2,250 and my variable expenses total $1,350.
Step 4: Cut Costs (if necessary)
Once you’ve calculated your monthly income and expenses, you can quickly decipher if you’re living within or above your means.
To do this, simply subtract your total expenses from your total income.
If the number is a positive number:
You’re in the green and should be able to afford your lifestyle with ease each month and can easily move onto setting up your zero based budget.
If the number you calculated is a negative number:
You’re in the red and cannot afford your current lifestyle, meaning you will have to decrease your expenses if you want to successfully start budgeting.
If you’re in the red and need to cut costs, use these tips and resources:
1. A Budget Binder– Use budgeting printables, like the ones found in the Budget Boss Binder, to begin tracking your finances and your spending. Then, begin decreasing your expenses by stopping poor spending habits and canceling unused subscriptions. Get your budget binder here.
2. BillBargain – A fantastic resource that will help you lower your monthly expenses. BillBargain has successfully negotiated over 85% of the bills they receive for cell phone bills, Wi-Fi, cable, and more. The best part? BillBargain is 100% risk-free. If they don’t successfully negotiate a lower price for your bills, you don’t owe them a dime.
2. Trim – Referred to as a financial health service, Trim securely connects to your bank account(s) to analyze spending, subscriptions, and recurring bill pay. Then, Trim will help you cancel unused subscriptions, negotiate lower bill prices, and more. In the last month alone, they’ve helped their users save over 1 million dollars.
3. The Ultimate Guide To Frugal Living – Learn over one hundred ways to save money every day (thousands/year!).
Step 5: Set Up Your Cash Envelope System
To get started:
- Invest in durable cash envelopes
- Have handy your total monthly income
- Grab your list of expenses
Next, follow these steps:
1. Add up your monthly income (after taxes)
2. Figure out which expenses you plan to use cash for (such as groceries, transportation costs, clothing, entertainment, etc.) and budget your monthly income accordingly
3. Each time you are paid, visit the bank or ATM to withdraw your budgeted cash for the week or next two weeks
4. Place budgeted cash into allocated cash envelopes for spending
My monthly take-home pay is $4,500 and I am paid weekly. And, I have a $500 monthly budget for groceries.
So, each week, I will withdraw $125 ($500/4 weeks) to place into my ‘groceries’ cash envelope.
Here is the most important part though:
You MUST NOT take money from one envelope to make up the difference of overspending from another envelope.
If you have $125 for groceries and the cashier rings you out at $128, you have to put something back. Do not take $3 from your gas cash envelope.
Your cash envelope budget will not work if you don’t stick to this rule!
Step 6: Tracking Your Budget
Most people forget this crucial part of budgeting and end up wondering why their budget failed a month after implementing it.
If you have a budget, then you need to track it.
Because, here’s the deal:
If you do not track your budget, you cannot make sure that you are sticking to your budget. And, if you aren’t making sure that you’re sticking to your budget, your budget will fail.
You might be wondering:
How do you track your budget?
These are my recommendations:
1. The Budget Boss Binder – $9 ($27 value)
A printable and digital budgeting planner designed to help you create & stick to a budget, pay off debt, save money, and more. The Budget Boss Planner is un-dated so you only have to purchase once to use this planner forever.
2. Honey Money ($50 value)
An online resource to track your budget. Honey Money is the internet’s version of a printable financial planner. Within your dashboard, you can create your budget, track your budget, create debt repayment and savings goals, and more. If you aren’t a pen and paper kinda person, I highly recommend this budget tracking resource.
Again, when you track your budget, you ensure that the system you put into place is working correctly.
Don’t let the time you spent creating a budget go to waste by avoiding this simple step!
A cash envelope system is a great way to open your eyes up to poor spending habits and get your spending under control.
You’ll be able to:
- recognize spending habits
- create spending rules and boundaries
- stop wasting your hard-earned cash
So, take action:
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