You’re trying to learn to budget, or you already know how to budget, but it’s difficult to stick to your actual numbers. Some bills are hard to budget for like gas, water and electric since they are based off of usage. Other places that may be hard to stick to a budget is groceries, gas, miscellaneous or fun money. Studies have shown that your brain processes using cash different and more painful that just swiping a card. Swiping a card is easy, whereas handing over physical cash makes you double think your purchases. Using that information, if you stick cash in an envelope for a specific budget category, it’s easier to stick to the budget. Once the cash is gone, it’s gone and you can’t go over.

The cash envelope system is using envelopes for each budget item you can, besides bills you pay online or with a check. My cash envelopes include pets, groceries, gas and miscellaneous/fun money. These are the budget items that are the easiest for me to over spend in.

Now you’re wondering where this cash is coming from. When you create your monthly budget, you have a monthly total for each of these categories. You then divide your total amount for the month by how many paychecks you have, so if you get paid twice a month, you divide your total by two and then each paycheck, take that amount out in cash. So say your grocery budget for the month is $500 and you get paid on the 1st and 15th of the month, you would take out $250 cash for that envelope each paycheck.

What if you don’t spend all of the money in your envelope for that month? Well you can roll it to the next month and use it as a mini savings account or if you’re like us and paying off debt, you can use it to make extra payments on your debt.

You can also use your cash envelopes for your sinking funds for things like car maintenance, vacation funds or gifts. It’s easy to pull that cash out and stick it away where you can’t see it so you’re not tempted to use it for unintended items.

Some people aren’t comfortable walking around with a bunch of cash all the time. There’s a few ways to remedy this. Keep the bulk of your cash at home in a safe and only take the envelope you will need. So you would only take the grocery envelope to the store. That also helps curb those frivolous purchases like the Dunkin Drive thru on your way back from the store. Another way is to use prepaid gift cards. You have a card for each budget category and you fill it each paycheck just like a cash envelope. Sometimes gift cards have fees, so to save on that, you can open a separate checking account and have a specific debit card for each category. Some people really like this because then you have the safety of fraud coverage or being able to get new cards if they were ever stolen or misplaced. These make it a little more complicated, but the comfort is worth it to some.

You don’t actually have to carry cash envelopes, there are plenty of wallet systems that are designed for this specifically, you just have to look for them. It’s fun to make this your own, that way you’re more likely to follow through!