You need to try out the cash envelope system!

The cash envelope system is a great way to help you pay off debt. You might be wondering if it’s worth it to carry around cash. So, I’m going to tell you how to get started with the cash envelope system!

When I started to take my debt seriously, I turned to cash. Using cash to pay for things instead of a debit or credit card can keep your spending in control. Cash envelopes helped me see how I was spending.

I created a cash envelope system for several budget categories. The most used cash envelope was for restaurants. Eating out is a luxury, but I wasn’t going to give it up while I was paying off debt. As long as debt payoff remained my biggest money goal, I was okay going out to eat, as long as I was using my cash envelope.

Ready to get started with the cash envelope system? Here’s my step-by-step approach!

Determine which categories need a cash envelope system and which ones don’t

When you want to be more mindful of your spending, make cash envelopes for your problem areas. Groceries and restaurants are big budget busters, so I chose to make envelopes for those. You may choose to do envelopes for one category or several.

Categorizing your spending is a great way to find out which cash envelopes you need. I like to break out my spending into four main buckets:

  • Fixed
  • Fun
  • Future
  • Fudge

Fixed expenses and variable (fun) expenses

Typically, your fixed categories will be expenses like rent, electricity, and internet. Variable expenses, or fun categories, would include restaurants, entertainment, and clothes. Your future category includes any savings goals you might have. This would include saving for a vacation, retirement, new car, or down payment.

My cash envelopes were a mix of fun and fixed expenses. Whatever you decide, your cash envelope system should help you with problem areas! Like spending money on clothes? Use a cash envelope. Enjoy being a foodie? Use a cash envelope. Overspend on groceries frequently? Yup. You need a cash envelope for that, too.

Determine what amount you want to contribute to each envelope

Now comes the fun part! Determine what amount you want to contribute towards each envelope. It’s best to figure that out by putting together a monthly budget.

Build a budget with a cash envelope system

Budget doesn’t have to be a bad B word. Simply look at your bank statement and see how much income you bring in each month. Then, look at your spending history. You can forecast future spending by taking an audit of your spending. After you take an audit of your spending, you can build your budget with the cash envelope system in play. You can download the spreadsheet that I’ve used since 2012 to track my income and expenses.

Learn How to Pay Off Debt By Putting A Budget In Place

Determine when you’re going to withdraw cash from the bank

How often will you go to the bank to withdraw cash? When I was using cash envelopes, I typically withdrew cash from the bank at the beginning of every month. It was funny because I would figure out how many twenties, tens, fives, and ones that I wanted.

Then, I would head to the bank and slide over a Post-It note. It would list the bills I wanted so I could correctly divvy up the cash into my envelopes. I’m sure I got a few strange looks from the tellers. So many people are doing the cash envelope system now that I’m sure it doesn’t phase them!

You might choose to do this monthly, weekly, or bi-weekly. It’s really up to you. Just know that you will have to physically go into the bank each time to withdraw the cash. That’s a big drawback to the cash envelope system. It’s not very convenient to go to the bank, especially during business hours. However, what’s nice about this method is that it really feels like you have a lot of cash. Even if it’s just $50 bucks going into one envelope. I felt like a rich bitch when I did this!

Keep your cash envelopes with you when you’re out

This is huge. You can’t cheat here or the cash envelope system won’t work for you. If you go to the grocery store and forget your groceries envelope, guess who’s going back home? When I was on my debt free journey, I did this very thing.

You might be wondering, is it safe to walk around with that much money? If you’re worried about it, you can always leave a portion of the cash at home and only take what you need. I didn’t worry too much about it, honestly. I made sure I had a purse with a zipper and I never took out my entire wad of cash in front of strangers. Like, duh. That’s common sense 101.

In summary, here is what you need to get started with the cash envelope system:

Step 1: Determine which spending categories need a cash envelope.

Step 2: Determine what amount you need for each cash category.

Step 3: Know how often you will withdraw cash from the bank.

Step 4: Keep your cash envelopes with you at all times.

Not having your cash envelopes with you can ruin this experience, so don’t cheat! And remember to take your time with the cash envelope system. Not knowing what to budget for each envelope can be detrimental to this experience. Follow each step and you will see how the cash envelope system can help you pay off debt. Let me know if you are using cash envelopes by tagging Debt Free Millennials on Instagram. I wanna see it!

Wanna see how cash envelopes work within your budget? My budget spreadsheet helps you see exactly where your money  is going every month. It’s all in the Budget Toolkit.

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