Cash Envelopes : The What and Why

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cash envelopes

How many times have you gone to the grocery store planning to spend $150 and you walk out spending $300 and wondering what the heck? Or with eating out? These are two of the biggest categories Americans overspend on. So what do we do? How do we control this spending?


Did you know the first credit card was established 1958 but it took till 1980 for them to begin taking over and since then a social revolution has begun. This revolution has taken Americans away from saving and pushing to spend! What did people use before debit and credit cards? Ask your grandparents or your great grandparents: CASH!


According to Avni M. Shah, an assistant marketing professor, paying with cash is more painful than paying with cards. Why? Because with cash, you are manually handing the check out person your money and seeing it disappear before your eyes.


Because of this fact, cash envelopes were introduced!


If you prefer to watch videos rather than read: click here!


What are cash envelopes?


Cash Envelopes are honestly what they sound like: cash in an envelope! But let’s get a little deeper. Cash Envelopes are used for categories that you normally overspend in such as: groceries, eating out, fuel, etc. And instead of paying for these categories with a card, you begin using the cash out of the envelope instead.


How do you use cash envelopes?


Cash Envelopes work like a check register (if you know what those are haha!). If you don’t, no worries we are about to explain!


1. Determine what categories you need to use cash envelopes for. A good starting point is any category you overspend in.

2. Before your paycheck arrives, determine a budget for the following categories. If you need help setting up a budget: check out this video!

3. After you have determined the budget for that category (ex. $300/month for groceries), pull out $300 in cash and put in your envelope. If you get paid twice a month, pull out $150 in cash each payday.

P.S. It is okay to start with using a regular white basic envelope or whatever you have in your house that can separate your cash!

4.) Then, you will want to write on the envelope ( + $300) to indicate you added $300 to your envelope. If you are using something to hold your cash that you can not write on, consider placing a sticky note inside to keep track of the balance.

5.) Now anytime you spend money on groceries, use the cash from the envelope and subtract from your amount. (There is an example provided below that includes how the back of your envelope could look.)

6.) Here is the tricky part: once the cash in the envelope runs out for that category, you can no longer spend in that category. Challenging right!?

7.) If there is leftover at the end of the month, you have the option to carry over to the next month or take the leftover and put toward your smallest debt or add to your emergency fund!


Example of the back of an envelope:


Payday + $300  (300)

Walmart - 106   (194)

Dollar General - 30  (164)



Tips for Cash Envelopes

Cash envelopes can be used in other categories besides ones that you overspend on. For example: if your dog gets vitamins or pills every month, pull that amount out in cash and store it in an envelope till it is time to purchase. Why? By pulling the cash out of the bank, you are taking out the possibility of accidentally overspending on your debit card and when it comes time to pay for the dog’s vitamins or pills you don’t have the money. This can also be applied to baby’s diapers/wipes and kid’s sport or school activities!


Another way cash envelopes can be used is for your sinking funds. (Watch this video for an explanation of sinking funds!)  If every month, you get your nails done, every 3 months your lashes, and every 6 months your hair you can plan and prepare. By roughly knowing how much you spend in a year, say you spend $1400, every month pull out $117 in cash and store it in your envelope. Whatever is not used, leave in there and carry over the amount! Using cash envelopes in this way prepares you for bigger expenses. This can also be applied to Christmas, birthdays, and back to school.


What if you or your partner hates cash? Or does not use a wallet that can hold cash? Gift cards! If your gas budget is $100 for the month, at the beginning of the month go and buy a $100 7/11 (or wherever you always get your gas) giftcard. Now everytime you get gas - use this gift card and when the receipt prints it will let you know how much is left on the card! This as well can work with groceries. And if you need to get two different gift cards because you get the majority from Walmart but you get your meat from Aldi’s, then get two! Plan accordingly how much you will need at each grocery store!


Benefits of using Cash Envelopes:

  1. It helps you stay accountable for your spending. When you only have a certain amount of cash in each envelope, you're less likely to overspend.

  2. Using cash envelopes can help you avoid credit card debt. When you're using cash, you're not accumulating debt, which can be a significant financial burden.

  3. Using cash envelopes can help you save money. When you're tracking your spending and staying within your budget, you're less likely to make impulse purchases or overspend in any one category.

  4. Using cash envelopes can help you achieve your financial goals. Whether you're trying to save for a down payment on a house, pay off debt, or save for retirement, using cash envelopes can help you stay on track and make progress towards your goals.

In conclusion, using cash envelopes is a simple yet effective budgeting strategy that can help you stay accountable for your spending, avoid debt, save money, and achieve your financial goals. Give it a try and see how it can work for you!