Cash Envelope System: How Does This Budgeting Method Work?
Cash Envelope System: How Does This Budgeting Method Work?
by Todd Kunsman
If you find yourself struggling to budget and save money, there is a technique you might want to try: the cash envelope system. While there are many new personal finance platforms and apps that can help, sometimes it can be a bit overwhelming. And don’t get me wrong, I am a fan of various budgeting apps that exist today. But sometimes it’s better to go back to basics and remove the digital technology out of your life.
If you are interested in a more “physical” version of budgeting, then the cash envelope system might be for you. Below, you’ll learn everything you need to know about this budgeting method.
What Is The Cash Envelope System?
The cash envelope system is a systematic personal budgeting method. It relies on being able to use cash for almost all fixed and variable purchases throughout the month. So if you haven’t got the cash left, you can’t go splurging on luxury buys.
The envelope system tries to control impulse buying and help you live within your means. And it works by having the saver (that’s you!) plan each and every purchase over the next thirty days.
Advantages of The Cash Envelope System
There are several benefits of using the cash envelope system; not least being that the method can enable you to get into a good budgeting routine with your money.
It turns out that only 32% of US families currently maintain a budget which can be a risky way of living.
Are you the type to wonder where exactly your money goes each month? Using the envelope method means you are tracking your spending (down to the last cent!) and will highlight exactly where you need to cut your spending or budget more for.
Plus, if you’re prone to overspending, the cash envelope system can prevent it altogether. If you don’t have the cash in your hands; you can’t buy — it’s super simple.
Disadvantages of The Cash Envelope System
Unfortunately, this budgeting method means you will miss out on those all important credit card bonuses, like travel points and rewards. And while they might not have an exact cash value, credit card rewards can be pretty lucrative!
The other negative factor of the cash envelope method is that holding and carrying a lot of cash can make you feel unsafe. Of course, any of us can be vulnerable to theft in a range of situations, but you may feel uncomfortable pulling large amounts from the ATM or using a credit card.
Steps To Starting The Cash Envelope System
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