The Cash Envelope System
It seems like forever ago that I was first introduced to the cash envelope system. Our system has evolved so much in the 10 years that I/we (single and married life) have been using it. That is just the perk of the Cash Envelope System though. As your life changes, there is this incredible ability to change the system to make it work for you too. In this post, I want to give you a bit of inspiration for starting up your own cash envelope system. If you would like a more step by step process of figuring out how much you need to put into each category, please check out my post on how to set up your envelope system.
What is the cash envelope system, you might ask.
The cash envelope system has been around for decades. Housewives would use the system as a way to organize the money that was brought in so that they knew exactly what to use the money towards. Pretty clever, right? They would have their envelopes for groceries, their envelope for bills, and more. Of late, I have been noticing a lot of movies set back in the early 1900’s that make use of this system.
Davey Ramsey and the Cash Envelope System
Dave Ramsey (www.daveramsey.com), financial guru, author, speaker, talk show host, markets and talks about using the envelope system in a few of his books and in the Financial Peace University. He has really made the envelope system quite popular. He is a huge advocate for using the Envelope System for those expenses that may come up every few months, once a year, or completely unannounced. These would include expenses such as car repairs and maintenance, clothing, new furniture, groceries, etc. Of course, he also is a proponent for saving for an emergency fund for those bigger unannounced expenses. For more information on each of his “Baby Steps” read “Total Money Makeover”.
Need some ideas for your own cash envelope system?
Just a fore mention, envelope needs will change over time. Generally, they will be consistent for a long while, but then you will find either an increased need to stock up or you may not need the envelope at all. Just be flexible as your needs change.
We don’t foresee any big purchases coming up soon, so we are only allotting $40 a month into this envelope . In the past, we have used this for furniture, decor, necessaries like towels/wash cloths, etc. We have ranged from dumping in $150/month to $20/month based on what we foresee ourselves needing. Now that we own a home, it could be used for home repairs, but it is not really in the month to month budget. We also have emergency savings for things that tend to come up with home ownership.
This is for date nights, birthdays, anniversary, and potentially holidays. We usually put in $20-$40/month in this envelope. It really helps the eating out budget on those special months and the grocery budget come the Christmas duck and ham trip.
Okay, so it took me a great deal of convincing before I finally started doing this one envelope. When I finally jumped on board with this envelope, I cut our grocery budget in HALF! We now budget $400/month every month. I pull out $200 in the beginning of the month because I go to Costco. The rest of the money will be used for the second half of the month.
We use to stock this envelope up prior to getting different cars. I mean, we had $800 in there at any given time. My old car was costing us about $1000-$1500 every year to get fixed. That doesn’t even include regular maintenance! Now, we only contribute $80 a month, but we do have a bit of a cushion in there if needed. A few things that we include in this envelope that you may want to consider are tags and titles, yearly registration, car washes, and possible your inspection if your state mandates those.
In our pre-baby, decent income years we contributed a pretty hefty amount to our clothing envelopes. I remember putting about $200 each month, yes, a month, into this envelope. Since my shopping hiatus I have taken a very different view of clothing. Now, we add just $20 a month per person to this envelope. I buy mostly used or thrifted clothing for myself and for Little Mister. Mr. Hubster gets a nice stipend each year to purchase work clothing which just so happens to be what he wears all of the time anyway.
This is also one that we don’t contribute much to as we have an emergency fund if need arose. We have been lucky to not have any medical expenses besides our possible over the counter medications. We will be stocking this one though, when we get pregnant again. This is used for over the counter medications, copays, eye glasses, and the like.
Now, this one is tricky. We buy our pet necessities outright and then we add the remaining budget to the envelope if we didn’t spend it all. So we allot $200 to this every month. Yeah, they can be expensive and if they ever have to have a procedure done it is crazy expensive too! Best to save up for your fur babies so you never have to make the tough decision about not being able to afford something emergent for them.
I cut Little Misters and Mr. Hubsters hair so we don’t have that expense. I don’t do anything extravagant like coloring hair or nails done so this is minimum. We put in $10 each month for this and it covers all of our personal upkeep needs if any arise. I am pretty low maintenance and actually started cutting my own hair recently too!
Little Man’s Envelope-
This envelope is designated for Little Misters allowance that he earns for helping with his chores around the house. We will also put money he receives for holidays in here and use it throughout the year. We only allot $10 here per month.
Every month we give ourselves just a tiny bit of fun money so that we can buy or do things that we want to do without putting strain on our monthly budget. In this season of life, we only get $50 each month. It is just enough for a meal out and maybe a book or something small each month. In other seasons we have had as much as $200 each month. I really don’t know what I would do with that much fun money now. I just cannot bring myself to spend much these days. My hubby, on the other hand, thinks $50 is too little and has a difficult time with it. He is the spender though and I am, well, different.
We really like to do free stuff, but every once in a while we like to do something that costs us just a bit of money. This budget is great for those months. We only contribute $20-$40 each month, but if we don’t use it for a few months then it really adds up. We could also use this to save up for an annual pass to someplace fun or even to go on a family vacation if it were small enough. If we were saving up for a large vacation, we would definitely have a separate fund for that.
Being a nurse, I have to pay for a yearly or biannual (depending on the state in which I practice) license renewal. I also have to pay for continuing education credits which are not cheap. We plan for this by putting in $10 each month. (Even though I am not currently working, I am keeping my license active).
So, I know what you may be thinking…
“Wow! she has a lot of envelopes!” or “why would I need to put $10 in an envelope each month, it is such a small amount?”. And here is my explanation. Everyone is so different with why they feel like they need an envelope. Over the past 10 years the envelopes that we have kept has changed a lot and the amounts we place in each has changed a lot. This is really what works best for us in this season of life. We make just enough for all of our expenses and a little for envelopes. When we are a two income family, our income will change and so will our envelope allotment. As far as the little amounts for a few of the envelopes goes, if I decide to pay to get my hair cut for $30 plus get some hair product every 6 months it will cost me about $50. That would be hard for our monthly budget. But with our envelope system, $10 is totally doable!
I hope this encourages you to make your own envelope system and possibly even get on a budget. If you need to get help with setting up your budget, please learn more about my Budget Coaching where I help families and individuals get on a clear path to a better financial future. Read more about our financial road here.
Just one last thing, the cash envelope system wallet and organization!
So, I use paper envelopes (yep, I am a paper kind of gal), but there are some super cute cash envelope systems out there. Here are some links to some great ones!!!
Deluxe Executive Envelope System: Dave Ramsey’s Financial Peace University–Perfect for a simple cash envelope system for men or women!
Bella Taylor Cash System Wallets (Navy)–This one I really love as it has a lot of dividers and still looks very nice!
If you are new to budgeting and really want to save, but also really want some pretty envelopes check these pretty ones out! Here is Mazie Magnolia‘s shop.
Updated with new information June 2018