You have heard me speak about budgeting many times before on My Debt Diary. Today I want to talk about one specific method. Whilst many people choose to set up and manage their budget digitally, myself included, cash envelopes are also a popular choice. But what are cash envelopes?
What are cash envelopes?
Put very simply they are envelopes with cash in. They are a physical form of a budget with each envelope holding a designated category. Most importantly they each hold a set amount of money. You may choose to use them for items such as shopping/groceries, petrol and takeaways for example. Everyone has their own priorities and their own expenses of course.
Each month you decide how much money you will allocate to each category. You withdraw the total amount you need from the bank and place the right amount in each envelope. You might choose to hold on to enough money for just a week or the whole month. Just choose the one that feels comfortable for you. To help keep things in order it’s important to mark the category on each envelope, so they don’t get mixed up.
There are two great benefits to using cash envelopes as your budgeting method. Firstly, handing over physical money makes you think more about your spending. You watch a certain amount leave your envelope and your remaining budget diminish. It forces you to consider whether a purchase is required or if you would rather save that money for something else.
Secondly, once the money is gone it is gone. Unlike using your bank account where everything is held together there is no chipping into other areas of the budget without actually taking money from another envelope. This highlights how quickly you use up certain areas of your budget. It can also help you to budget more accurately in the coming weeks and months as you gain a better grasp on your spending habits.
What’s better, if you have money left in your envelope at the end of the month it will feel incredible. Now you can make a choice. Do you spend more on your shopping that month? Do you put it in savings? If you have debt that is the obvious choice! Even if it is only £1.50 that is left, put it somewhere. If you follow me on Instagram you’ll know how much I believe in throwing even the smallest amounts at your debt total. The point is, taking control of your money like this will give you more choices.
The cash envelope system is a great method to use if you are new to budgeting or really struggle with limiting your spending online or with a bank card. Sometimes, in order to come to terms with a completely new way of handling your finances, a new way of spending can be the perfect approach.