The Cash Budget Envelope System: Do You Use it?

[HumboldtGurl]

I'm curious: if you are on a cash-only budgeting system, do you use actual cash to pay for expenses, or do you use a debit card?

DH and I are debt-free followers of Dave Ramsey's financial advice. For the last couple of years we've paid cash for everything, but we use our debit card to do it. However, Ramsey advises against this and suggests his "envelope system"....keeping predetermined amounts of actual, physical cash (what's that?) in envelopes, and only spending from those envelopes. So when you're out you're out.

I've been wanting to try this because I think I could get a better grip on our monthly spending, but DH doesn't want to. Because we live in our RV most of the year, he thinks its a bad idea to keep so much cash on board.

I'd love to hear if anyone else uses the envelope system and how it's worked for you.

[catherine]

I'm also a DR devotee. I signed up for the online Total Money Makeover for a year, and as a bonus they sent me a wallet with envelopes to use for cash.

Man, it was no time at all before the envelopes were all ragged and I had "stolen" from the gas envelope to pay for groceries because I didn't have small bills, etc. etc.

A lot of the DR folks really swear by it, but the only way I could manage was to figure out what my cash-only budget was for the month (like food, gas, clothes, misc.) and divide by 4 and then withdraw that amount from my checking account on a weekly basis. I made up my mind that I was living on that money, but I didn't subdivide any expenses.

It works better for me, but only because my DH and I do a DR no-no and keep our finances separate (long story). If we were pooling everything, that might get too difficult to monitor.

[chanterelle]

Since about 3/4 of my purchases are from local shops I use cash to spare them the transaction fee.
My CSA, which does not take cards, and is a large enough ammount that cash can be a problem for them, gets a check.
Gas stations here often charge $.10 extra per gallon to use a card, so they get cash. On trips I use the card because I have a set gas budget so I put that into my account and I rarely run into the extra charge outside of this areaanyway.
Hotels get debit but all other purchases, which have been planned for, are cash as they are also often made in local shops in the areas I travel in.
Online purchases [ like the doggie socks from your website!] are planned for and get put on the debit card.
Sometimes I will use a credit card when I come upon something at a great price, like my new winter coat, that I have been on the lookout for but was not expecting to find just yet. I then pay the card off with a bank transfer from my stash.
I do not use envelopes per se but work with very carefully budgeted ammounts within a general pool of cash. I have been doing this for so long that I am not longer tempted to fudge funds from one source to another.
I also write EVERYTHING down, even after becoming FI these last 10 years.

[mtnlaurel]

I used the envelope system when I waited tables in my 20s and it worked like a charm for me at that time.
When I got home I put tip money in appropriate envelope - I paid my roommate in cash for rent & utilities.
I would take $$ to bank to write a check before I wrote it --- bank was close to my house.

My life was much, much more streamlined then though. It is very easy when you are the Captain of your Own Ship in many ways.

It gave me a GREAT physical sense of allocating $$ though.

I could understand not wanting to have that kind of cash on you though when you are travelling.

This isn't necessarily a 'simple' suggestion, but maybe you could replicate the Physical part of the exercise using funny money (make homemade Monopoly cash or something) and move it from envelope to envelope as you use debit card. ???????

[redfox]

My DH does our books weekly, and we have an allowance we stay within, for the most part. If one of us needs or wants to make an expenditure significantly outside of this, we consult each other. Our weeky budget is the same; $170 for all food & transportation expenses. Often we're under this amount. We have a house account out of which we pay all our bills, and use the debit card.

Recently we've been at or somewhat over, as we're hosting an out-of-work friend. We'll recompense the expense this spring when he assists DH in the remodel of our garage into a finished office for me, and a functional tools area. He's an architect & carpernter, my DH is a builder, so I know we'll make back the grocery $$ we're spending now!

If you're worried about keeping large amounts of cash around, maybe you can put your weekly amount into a savings account and use the debit card for just that account.

[ljevtich]

I'm curious: if you are on a cash-only budgeting system, do you use actual cash to pay for expenses, or do you use a debit card?

DH and I are debt-free followers of Dave Ramsey's financial advice. For the last couple of years we've paid cash for everything, but we use our debit card to do it. However, Ramsey advises against this and suggests his "envelope system"....keeping predetermined amounts of actual, physical cash (what's that?) in envelopes, and only spending from those envelopes. So when you're out you're out.

I've been wanting to try this because I think I could get a better grip on our monthly spending, but DH doesn't want to. Because we live in our RV most of the year, he thinks its a bad idea to keep so much cash on board.

I'd love to hear if anyone else uses the envelope system and how it's worked for you.
IF you feel like having too much cash onboard then make your cash be travelers checks. Or get a safe. or go to an ATM when you are out. Being an RVer does not mean that you can not have the cash available to you.

[Tiam]

I'm also a DR devotee. I signed up for the online Total Money Makeover for a year, and as a bonus they sent me a wallet with envelopes to use for cash.

Man, it was no time at all before the envelopes were all ragged and I had "stolen" from the gas envelope to pay for groceries because I didn't have small bills, etc. etc.

A lot of the DR folks really swear by it, but the only way I could manage was to figure out what my cash-only budget was for the month (like food, gas, clothes, misc.) and divide by 4 and then withdraw that amount from my checking account on a weekly basis. I made up my mind that I was living on that money, but I didn't subdivide any expenses.

It works better for me, but only because my DH and I do a DR no-no and keep our finances separate (long story). If we were pooling everything, that might get too difficult to monitor.


I haven't done this yet, but if I did, I would do it like you. My life is so busy, how could I deal with cash envelopes for the bills? Take the money out of the bank, then put it back so I can pay off a bill online? We don't even have local gas, or electric companies, or phone companies or cable companies in our town. Everything is online or by check or Credit card.

[lhamo]

I think this kind of a system might work/be necessary if you really have difficulty controlling your money. In our case, we don't do envelopes, but here in China we are pretty much all cash. I will use my local debit card for some larger purchases (Ikea has aisles that only take cards, not cash, so I use it there most times we go), but pay cash for most everything else. I enter my cash expenses in my master FI spreadsheet just about daily and have the running totals linked to a sheet with monthly and annual budget targets, so I can see if/when things are getting out of whack.

If your debit card is working for you, I don't see why you need to fix something that isn't broken.

lhamo

[dado potato]

We are somewhat like redfox on this. We are emptynesters living on a "common pot" basis (all income pooled, all expenses paid out of one checking account). There is one person who is the book-keeper/manager of the finances. This role has been permanently held by the same person, and probably will remain so, due to the learning involved. But periodically the offer is made to transfer the role to the other spouse.

We don't keep nor want to keep much cash around. Between us, it's rarely greater than $60. So, no envelopes.

But we spend on a pay-as-you-go basis for any discretionary items, using either a debit of credit card. We each have one of each we carry around.

[Float On]

I tried the cash envelope system back when Larry Burkett was with Money Matters. I was an envelope failure. I stole from envelopes to cover other envelopes and then during a big grocery shopping trip I lost an envelope and all the cash in it. I went back to using the credit card (and now the debit card). At least I get a statement every month (or watch on-line) and can track my spending better.

[Aqua Blue]

When I get home from shopping I take the receipt from every store and record line by line on a sheet of paper what was spent for each category. I typically shop once per week and this takes my just a few minutes to do. I have a running total in the grocery category and the eating out category(and a few other categories). When I reach my limit I stop buying.

Since I look at that sheet right before I go I have a pretty good idea how much I can spend. If I want to keep my groceries to under $125/mo and I am on week 4 of the month and have spent $105 I know I need to spend under $20 for this trip, That motivates me to look around and see what I have that I can use from the pantry. The receipt also makes it easy to separate out dog food or household expenses.

I toss receipts that are on the credit card in an envelop to check before I pay the credit card bill. Then they are discarded. I ask for receipts where they aren't readily given. If I don't get a receipt I jot the amount down(usually on a receipt I have already gotten for that day) so I remember.

[HumboldtGurl]

When I get home from shopping I take the receipt from every store and record line by line on a sheet of paper what was spent for each category. I typically shop once per week and this takes my just a few minutes to do. I have a running total in the grocery category and the eating out category(and a few other categories). When I reach my limit I stop buying.


Whammo! I think you nailed how to get around the envelope system without using actual cash. I track everything in Quickbooks, but running a P&L report is essentially the same thing as what you're doing. I just need to do this weekly instead of once or twice a month like I normally do. I'm going to give your system a try, thank you.

It's been really interesting seeing how y'all are sticking to your budgets without using cash in envelopes. Thank you for sharing!

We actually tried using "funny money" once in envelopes with pre-determined budget amounts on them, but it worked for us for about a week. It just wasn't real enough I guess.

Sounds like the debit cards aren't such a bad thing to use after all, thanks for the reassurance.

[redfox]

Weekly reports is a fantastic way to manage. And, doing every week makes it short & simple. My DH works half days on Friday, so he comes home for lunch, does the books, pays the bills, then does the weekly grocery shopping.

He orients me to the books by pulling up the QB register, the spreadsheet with our debt balances & payments, and his 6 week forecast. Then we talk over any upcoming major purchases, which are over $100 for us.

We've shared the books chore back & forth, and over the years have evolved this system. He manages it, and I am happy he does so! If/when I need to take it over, I have an understanding of it.

[pony mom]

I now use a modified version of the envelope thing since I used to steal from one to fill another. Now, I have one envelope with all my cash. I also have a loose ring binder with these really great manila sleeves; these contain lined paper with different headings for each sleeve, like Auto, Horse, Personal Expenses, etc. Some categories have a Cash and Check page.

I keep track of how much cash I have in the envelope---all of it is allocated to the different Cash categories; the amounts are written on the lined paper for each. I always record the date and amount of each deposit or withdrawal and the description. A month's worth of cash is kept in my car for gasoline, which is separate from the Car cash expenses.

I have a debit card instead of a CC. My checking account is also tracked the same way as my cash, with the balance allocated to different categories where I'll write checks/use debit card, like Health Insurance (which is under Other Check Expenses), Horse, Car. I also have a Fun Fund, which included cash and money in my checking account.

This worked out great for me and I can easily see what I spend every month. It's a PITA to keep track but I can't imagine not doing it and having no idea how much cash i've got around for whatever comes up. My income changes from week to week, but I have some idea of how much $ I'll need for my regular monthly expenses.

At the end of the month, I record all the money spent in each category on an accounting spreadsheet; this lets me easily compare expenses from month to month.

Can you tell I like accounting?

[jennipurrr]

We are in week four of the "envelope" system specifically for food. Before this our method had been to review our spending each month, tweak where we had spent too much so that we would spend less in the future months. This works great for us except for food! My DH and I are both each bad about wanting to ditch the plan and relax and eat out.

So, after consistently overspending on food, we decided we had to do the envelope system. But, we also don't use cash, so what we did is just keep a record of each food purchase and then when we get to the predefined number no more groceries, no more eating out. We do it on a weekly basis. So far, our food budget is likely to be the best it has been in a lonnnnnnng time doing this.

We were both resistant at first, and I even wrote a post lamenting that we couldn't cut back ourselves without these rigid controls, but it is totally working for us. The rest of our spending is pretty close to where we want it to be, but I would not hesitate to expand to other/all categories if we really wanted to cut back hardcore. Good luck with your budgeting!

[HumboldtGurl]

Can you tell I like accounting?

Eeek! yeah, I'd go crazy with that kind of system. You can do our books anytime! ;)

[Fawn]

I do something simular to Aqua Blue.

I track all expenses, have been doing so for 12 years and can tell you what I spent on any category I have had over the years: day care to music lessons.

I tried the envelope system, but if a kid needed all new pants because he grew 6" in 3 months, I am still going to buy him pants...I would just take the money out of another category. Also, gas money was impossible to predict as I drive for work and mileage varies wildly. If I take all three kids to the dentist for cleanings and flouride at the same time, that is almost $500 outlay. I get most of it back from the insurance comapany. No need to do it as a cash transaction. I write a check and deposit a check.

I usually get $300 cash once or twice a month, put most of it in the house and carry a debit card w/ me plus anywhere from $0-$100 cash.

Anytime I spend money, I get a receipt or write down the category and amount on a piece of paper I carry in my wallet for this reason.

At the end of the day, I transfer the amounts to my monthly log. At the end of the month I total things up and evaluate if I am spending in allignment with my values.

After years of doing this, I rarely am surprised by the totals, but I do find areas to concentrate my efforts at different times. For example, I'm working a lot right now, so grocery expenses go up as I buy semi-prepared foods (refrigerator biscuits, pre-made meatballs, etc) to facilitate fast dinners between work and evening activities. When I am not working so much, I will focus on getting the food costs down.

I do something that might be counter intuative for most folks--I keep my first $1,000 of my emergency fund in the checking account, but do not note it in the register. For example if there is really $1,417.23 in my checking account, my register will say that there is $417.23. I know the money is there, but I will not use it unless there is some unexpected expense that needs to be taken care of right away.

Short answer: the envelope system did not work for me.

[HumboldtGurl]

I'm curious how many of you are self-employed?

Fawn, I think that my current method is very similar to yours, except leaving the $1,000 in our checking account. I don't have the kind of willpower you do, I know I'd spend it. Kudos to you!

[Spartana]

I also use a modified envelope system. I have quit tracking my expenses and just pay household bils direct from checking account (utilities, etc..) and then take out $600 each month from the ATM and that's my spending money for the month - food, gas, pet food, entertainment. Each day I take $20 out of the envelope and put it in my wallet. Some days I spend it all, other days I spend only part of it, and some days none of it. The next morning I grab another $20 to add to whatever remains. and on and on each day, all month long. At the end of the month I often have money left over - sometimes most of it - and then can splurge on something or just leave it in my wallet and continue to add $20/day to it the next month.

Except for emergencies, I prefer to do it this way rather than use a debit card because I can only spend the amount I have allotted myself. Where as with a debit card I have access to the whole of my bank account and can over spend. And while I don't really know how much I spent on individual things each day, I know that i didn't ever over spend more than I budgeted for because you can't spend more than what you have on you when you pay cash. I also have found that I spend less when I use cash (as compared to using a debit card, credit card or check) because when I go into a store I will only take in the amount of cash I am planning on spending - no more. That really cuts down on those impulse buys because - well... you don't have the money on you to BE impulsive. If you only take $5 into a store with you - and leave the rest in the car with you DC, CC, and checks - there is no way that you can ever spend more than $5. Unless you have a VERY friendly cashier :who'll take something in trade ;-)!

[Bill]

I use a debit card for most purchases and rarely use cash. I track all my finances on Quicken which I have used for the past 15 years. It takes about 5 (or less)minutes per day and I can look back at all finances for the past 15 years. If I use a credit card I pay it (online) weekly. Using Quicken and online banking it is very easy to track everything and stay within a budget. I'm not a shopper so that probably helps too.