How the Cash Envelope System Saves us Hundreds of Dollars Every Year

What is the cash envelope system you ask? Well, this is a system of managing money that many of our grandparents and great grandparents used. It is old fashioned and some people believe it is outdated and inconvenient. However, it helps save money and control spending in a way that no other system has for my husband and I.

Here is how it works:

Each month my husband and I take out all of the money we are spending that month in cash. We do not use credit or debit cards. Ever. We decide at the start of the month what categories we need money for and figure out how much. We fill our envelopes and when the money for that category for the month is all gone, we do not spend any more money in that category. For example, if we allot $200 for groceries for the month and we use it all by the 15th, we do not spend anymore money on groceries until next month.

This forces us to be smart with our money and only buy the necessities. Science has proven time and time again that people are much more likely to spend more money when swiping a card rather than handing over cash. There is something we go through psychologically when we watch that money physically leave our hands. This causes us to spend less and save more. You can have envelopes for anything you want and put as much or as little money you wish in each category.

I will not lie and tell you this is easy, especially if you are trying to get out of debt, as my husband and I are. We put the bare minimum in each category and have some months where we fail, but we work harder and harder month after month, year after year, to perfect our cash envelope system.

Cash Envelope Categories:

My husband and I’s categories are

Gas, Groceries, Fun Money (we each get separate envelopes for this), Pets, and some months we splurge an have a date night envelope that gives us maybe $50 to go out one night.

While we get out of debt we do not spend money on anything else. Anyways, here are some other envelope ideas that we plan to add in the future or that I have heard other people use:

  • Clothing
  • Kids Necessities
  • Eating Out
  • Hair Cuts
  • Medical
  • Beauty
  • Home Maintenance
  • Gifts
  • Babysitter
  • Kids Commission
  • Charity/Donations
  • Dog Grooming
  • Massage (you better believe when we are debt free and have the money I will be budgeting for one massage a month!)

This system forces you to pay attention to where your money goes every month. It will shock you at first when you limit yourself and realize just how far you can stretch a dollar. I hope that if you try this system you will let me know how you like it and if it works for you!

 

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