Here are 12 quick tips to help you jump-start your adventure into the Cash Envelope Method. Please comment below if you would like to add an additional tip to the list!
1. YOU CAN START WITH JUST A SINGLE CUP OF COFFEE
The category that I most often hear people talk about wanting saving money on is Coffee... and it’s no wonder, it's expensive! The average American spends around $1,100 a year- or $3 each day- on coffee! - let that brew for a moment.
Starting a cash envelope system just for coffee could help you get started with this whole budging thing in an easy and approachable way. (You can really start with anyone category that you think will make the biggest dent in your spending… not just coffee!)
2. USE A CASH ENVELOPE WALLET
Having a nice wallet to keep your cash envelopes organized is a great way to feel good about the new direction you’re taking with your finances. We’ve found that color coding and labeling your envelopes helps you to quickly access the cash, and keep your receipts safe too. We don't keep the receipts in our wallets for long - we actually collect them in a dedicated drawer at home just to keep our wallets clean, and a record of each purchase all in one place.
3. COMBINE CATEGORIES THAT ARE TOO SMALL, OR HAVE TOO MUCH OVERLAP
When we first started budgeting we had Groceries in one category and Cleaning Supplies in another, but we typically purchased them at the same store, at the same time. After almost a year of trying to keep these as separate budget categories, we realized it was so much easier to lump these together in a single category.
Some families I have talked to like to Keep their Groceries and “Going Out to Eat” budgets in a single envelope because they are in a give-and-take relationship with each other, as going out to eat more will, in theory, reduce your grocery budget for the month (and the opposite is true too). If that works for your thinking, then go for it. We’ve found though that because the motivations for going out to eat are are totally different mindset than heading over to the grocery store, we’ve actually had more success in keeping those categories separated. Which is why we suggest tip #4.
4. SEPARATE CATEGORIES THAT HAVE DIFFERENT SPENDING BEHAVIORS
I used to have my “Fun Money” and my clothing budget in the same envelope. But for clothing, I often will save it up for several months and then go and buy a few items at a time. To contrast that behavior, I was often tempted to spend my fun money down to $0 as soon as a good opportunity presented itself. Unfortunately for me… I had a lot of fun, but not a lot money left over when I finally needed a new pair of shoes! So, for me, since my spending patterns were so different for each category, it made the most sense for me to separate these categories into two separate envelopes.
5. DIVIDE AND CONQUER
If you are using the Cash Envelope Method with another person in your house, then you might find times when both of you need the cash for a single category – This happened most often in our house with the grocery budget. While my wife made most of the grocery purchases, I would occasionally stop on the way home from the store just to pick up a last-minute item. Keeping my own grocery budget of less than $40 a month helped us to make sure I had the cash on hand to make those purchases easily.
6. CREATE A MONTHLY BUDGET OR A ‘BY-PAY-PERIOD’ BUDGET
You can set up your budget on a weekly, monthly, yearly, or even by Pay period. We’ve found the most success in doing it by month, but if you are first getting started budgeting how each paycheck will be spent might give you the most success. Either way will work – just get started and find out what works best.
7. HOW TO TACKLE NON-MONTHLY BILLS
Some of our bills don’t come every month – our property taxes and life insurance premiums are due only once a year. Being able to anticipate these types of expenses that only occur every 6 or 12 months is the first step in good budgeting, and then creating a dedicated envelope to set aside a portion each month (1/12th of the total) so that when the bill comes due, the money is already there! It's a great way to reduce stress about those larger bills that might have a way of sneaking up on you.
8. FIND OUT WHAT WORKS, AND WHAT DOESN’T
Budgeting can sometimes be more Art than Math. And as you learn the Art of Budgeting, you may take several months of spending before you really pin down exactly the right amount of money for each category. You may have some setbacks along the way as well, but it’s important that you find out what works best for the way you handle money.
9. REDUCING YOUR FIXED EXPENSES (AKA “THE BILLS”)
Finding ways to reduce those monthly bills has a 12x effect on your total budget. Even lowering a cable bill by $10 a month can add up to $120 a year. Reducing a bill allows you to redirect that money towards more important things in your budget.
Try starting with these:
- Cell Phone
- Internet Provider
- Cable TV
- Home Security System
- Satellite TV
- Satellite Radio
10. PERSEVERANCE PAYS OFF
Starting a new budget will be an adjustment, and you can expect that you won’t do everything 100% right the very first time you try it. But, if you stick to the envelope method, you will see improvements in your finances. Make a commitment to stick with it for at least 6 months so you can get a good sense of how budgeting with Cash Envelopes can really change the way you think about money.
11. USE EXTRA MONEY TO PAY DOWN YOUR DEBT
If you have a cloud of debt following you around – using the envelope system will motivate you to spend reasonably so that you can divert the cash left at the end of the month towards paying down debt. Simply identify the categories that you feel could benefit from a dash of thriftiness, and at the end of the month, collect the money left in those categories' envelopes and use it to make a payment on your debt.
12. MOST OF ALL, HAVE FUN
Don’t forget to set aside a few dollars every month to treat yourself. And if you really want to splurge… let that money rollover for a few months in your envelope – paying for a bigger ticket item with the money you have saved up will be your reward for sticking to your budget.
13. COMMENT BELOW
Read the comments to find out what tips and tricks have worked for other folks.