So many of us so accustomed to automatic bill payments and making payments with cards that carrying cash seems like such an old-fashioned idea. However, for those of us who have lost control of our spending habits and have trouble regulating the repercussions of going over budget, relying mainly on cash for monthly payments can be a major game changer. This post is meant to help those struggling with their budgets understand the benefits of setting up an envelope system in order to use cash for routine monthly payments and place restraints on a poorly managed budget.
When you rely on cash for your monthly spending habits, it’s important to create budgeting categories. It’s very likely that you will not be able to use cash for every expense. Fixed expenses like housing, car payments, utility bills, cell phone bills, a loan payment, and direct savings will still have to be done through your checking account.
However, common budgeting categories can be allocated to envelopes for expense categories that are flexible or under your immediate control. Things like groceries, clothing, dining out, personal care, doctors visits, emergencies, vacations, fun money, and periodic expenses all can be maintained using a cash envelope system.
The idea is that these categories can often vary from month to month, and they are easy to lose control over. Determine the categories, necessities and luxuries, that dominate your monthly spending. Then, establish a color-coded envelope system with a specific budget limit to monitor and regulate your monthly spending. Upon your next pay day, withdraw cash from the bank to stuff your envelopes full of paper money. Request a combination of five, ten, and twenty-dollar bills that will align best with your envelope categories. This is a system that works for controlling your budget for multiple reasons, explained below.
1. Learning How to Control a Budget Independently
For people who are living independently for the first time, it easy to overlook how much every dollar adds up throughout the month. By creating money envelopes, young adults who are acclimating to the responsibilities of jobs, bills, and personal care can learn to live within their means without overspending. Budgeting envelopes serve as a great training tool in order to concretely measure where your spending needs restraint. In addition, they serve as a positive barometer for identifying your budgeting strengths.
2. Identifying Personal Weaknesses
When you are someone who forms the habit of eating out frequently, stopping at coffee shops, or hanging out at the bar way beyond happy hour, strictly sticking to the envelope system will still allow you to partake in these activities. Nevertheless, it will also show you that there are consequences when you make poor choices and spend your money too quickly. The envelope system can help individuals identify where they succumb to temptation and where to cut back on or restructure frivolous spending habits.
3. Working Towards Rewards With Visible Results
Creating envelopes for categories like clothing, personal care, and even vacations can be great motivators over time for encouraging people to save. When you allocate funds towards the things that you really want to have, you will always have reserves on hand. Also, you will notice your money envelopes for these non-routine expenses getting thicker and thicker over time. Instead of worrying about dropping an entire paycheck on a last-minute vacation, your funds will already be there to support your trip or buffer it with some extra money to spend.
4. Preparedness for Unexpected and Seasonal Expenses
Creating envelopes for categories like medical expenses, emergencies, and even seasonal costs like holidays and birthdays will alleviate some of the stressors of these commonly overlooked spending categories. When you allot money toward health expenses, your fees for doctors visits and prescription medications will already be covered. Furthermore, family affairs and celebrations will cause a lot less tension as you will have already allocated funds for these expenses, making gift-giving much more pleasurable.
5. Effective Tools for Cooperative Budgeting
When it comes to budgeting as a couple or with roommates, sometimes it’s difficult to have serious conversations about your spending habits both individually and as a unit. The envelope system can be planned collaboratively, and it concretely helps all parties sharing the budget to be mindful of their spending. If you agree to adhere to individual envelopes strictly, especially for categories like entertainment and personal treats, each individual only has himself or herself to blame in the case of going over budget.
Ultimately, budgeting envelopes teach mindfulness and responsibility to take control over carefree spending. As long as there’s money in the envelope, you will always have that money available to use. If there’s extra money at the end of the month, these funds can be reallocated to savings, or they can be repurposed in categories in which your original budget was not successful. Always take time to reflect upon and evaluate your budget, making it work for you while still living within your means.
BMG Money is invested in its customers and always willing to provide support and assistance in understanding money and making responsible financial decisions.