Friday, 7 November 2014

How to Create a Cash Envelope System

The idea of having a cash envelope system is that you should only buy things with the cash you have allocated for that area of your life. It's to help give you boundaries to work within so you don't over spend.

1. Create a Budget
This is the fun part! Yeah, not even close. If you have a partner, spouse or roommate, you'll have to sit down together and hash out what money needs to go into what areas. This part can get a little touchy if you're not on the same path. But work it out the best you can. This is where you are going to figure out how many envelopes you need and how much money will be in each envelope. To figure out how to create a zero based budget, you can use this form and watch the video below to help you out.

2. Divide your Hard-Earned Cash into Envelopes
(if you want, you can roll in it before you stash it)

My husband gets paid bi-weekly and I get paid bi-monthly, so we withdraw a certain amount on his paydays and some on my paydays. Also, some of our bills come directly out of our account, so that money just stays in our chequing account. You'll need to update your budget monthly as different things come up that you have to budget for i.e. Christmas. We've been saving in this envelope for a few months! High-five for not having to use any credit this Christmas! Here are the cash envelopes our family has this month:

  • groceries
  • gasoline
  • restaurant
  • His spending money
  • Her spending money
  • Water bill
  • Christmas gifts
  • Car maintenance
  • Home maintenance
  • Clothes 
  • Pets
  • Haircuts
  • Swimming lessons

3. Cash is King
Going to get gas? Take it out of your cash envelope. Grocery run? Cash, baby! By the end of the two weeks, the envelopes are pretty skimpy and lonely but there is some satisfaction in knowing that you stuck to the money that was allocated to that specific area. I'm not going to lie, sometimes, at the end of the two weeks when all the grocery money is gone, there is a lot of PB and J and eggs for dinner. That's okay - a few sacrifices never hurt anyone! The key here is to not use your debit card AT ALL. You should have enough cash to cover all your expenditures. And if there is no cash for it, you just don't buy it. Save up for it next month. What? Wait for something. Ouch... I know.

4. Wash, Rinse, Repeat
Just kidding. No need to wash and rinse but you will repeat this process every month: Create your budget and then allocate the money to different areas of your life. The hope is that, by budgeting, you will have extra income at the end of the month to save or pay off debt, depending which baby step you are on if you're following Dave Ramsey's The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness.

Other Helpful Tips:
  • You might need to adjust things in the first few months as you try to figure out how much money you really need in each area. That's okay! That's how you figure it out.
  • You can buy an envelope folder from Dollarama or any dollar store for cheap. Until then, good ol' fashion envelopes will do, one for each area. I just like having everything in one place.
  • If you would rather take out cash for the entire month, you can do that. If a weekly system is better for you, go with that. It doesn't matter how you divide the money, as long as you follow your budget.
  • I don't walk around with a huge wad of cash in my pocket. If I know I need groceries or gas that day, I make sure to take it out before I leave home. By the way, don't come looking for my envelope. I have a Belgium Shepherd that will chew your face off. She's sweet... until you mess with her family.

How does your family budget? I'd love to get your feedback!

No comments:

Post a Comment