Cash and Envelopes, that’s my Budget! From the time I was about 5 years old my parents gave me an allowance. I think that I got $3 each week. I remember having three envelopes and my parents teaching me I needed to put some money in each cash envelope category. My envelopes were labelled savings, spending, and giving. I had three dollars and three envelopes so my decision was pretty clear.
The Envelope System
Fast forward about twelve years and I am still using the envelope system today. I now have six envelopes titled: spending, church, clothes, college, car and retirement.
How Do You Get Started Using The Envelope System?
I’m so glad you asked!
The cash envelope system really is very simple. First, you need to decide what areas you most need to control spending and where it is reasonable to use a cash only system. My mom, for example, has used the envelope system in the past for spending, eating out, and groceries because those were the areas where she wanted to be most careful with managing her money.
Once you decide which ‘categories’ you want to use, get an envelope and label it. We had some red envelopes left over from Christmas one year so I use those. You can use the cash envelopes that the bank gives out or any kind of envelope or divider system that works for you. Keeping the envelopes in your purse, wallet, or your car is a good idea if you are likely to forget them at home.
Every time you get paid you simply withdraw or keep enough cash in order to fund your envelopes for that pay period. It is also helpful to write the amount on the envelope that goes into it each pay period to help you keep track of everything. I don’t have regular income so I do not put the same amount of money into each envelope each week. Whenever I do earn any money I just take what I have and make a decision then about how much goes into each envelope.
Some people use their envelope system to help them save as much money as possible. If they have money left in one of their envelopes at the end of the pay period they remove it and put it into their savings or retirement account or even toward paying off a bill. Others use any money that they don’t spend to treat themselves to something special like a new outfit, going out to a movie, or something else fun.
Most of my envelopes are for long-term savings but I have been known to take some of my spending money and put it towards clothing. It can be a lot of fun to see how much you can save in different areas so that you can do something else with the money!
There are a few reasons that I have stuck with a cash system rather than using a debit card or other method:
Back To Cash
It is easier for me to make wise decisions about my money when I actually handle the cash. At seventeen I don’t have a lot of money to work with and no regular bills. Normally I have about $20 to divide up between my envelopes at any given time. I try to have small bills so that it is easier to put a little money into each envelope but most of the time I don’t have enough to put something into every envelope.
This also makes decisions about spending money easier using the cash only budget system. Can I go to the movies? I take a look at my spending envelope and the answer is clear. Can I buy a car yet? Ummmm. NO! Unless someone has a car that only costs $57 dollars – the current balance of my car envelope…
For some reason I seem to spend less when I have to pay cash. Maybe it’s something about swiping a debit card that makes it too easy. When I actually have to hand over a $20 dollar bill I think more carefully about the purchase. At this stage in my life I need that accountability. This is one of the reasons I plan to avoid credit cards – it is just too easy to swipe away and not really think about the money you are spending!
Motivated To Save
There are times when I want or need to buy something specific. One of the great things about the envelope system is that I can just make a new envelope. Having the envelope motivates me to put as much as possible in it so I can make the purchase more quickly.This also works for me with long-term savings.
It is really encouraging to see the balance in my car or college envelope going up! Of course, I try to make sure that I don’t allow my desire to buy something to influence how much I put into my long-term saving envelopes. I may want a new iPod but I want a solid retirement even more!
How To Use Cash
1. Get money. 2. Put money in envelopes. 3. Use money in the way it was designated. 4. Done. This is an easy system that anyone can implement.
Many adults need a system that will allow them more flexibility than the envelope system gives especially for paying large monthly bills. However, using an envelope system for certain areas like grocery money, clothing or spending might be very helpful to you. It becomes more difficult to overspend at the store if you don’t have any cash left in your envelope.
Even my grandmother gets cash for her grocery envelope. She just keeps the envelope in her purse and pays cash at the grocery store. This helps stop her from overspending on groceries. My mom has a smart phone and she uses a digital envelope system. Every time she makes a purchase we enter it immediately so that we always know how much grocery or gas money we have left. Which leads me to my final point:
Tracking Your Finances
The method that you use to keep track of your finances really doesn’t matter. What matters is that you have a system and that you use it every. single. day. Or at least on a very regular basis. If you know the envelope system isn’t going to work for you because you will be tempted to buy a new dress with college money then don’t use the envelope system!
There are a number of digital envelope systems and I know people who keep track of everything on a simple budget spreadsheet. I’m sure that there are other ways to track everything that I have never even heard of!
Deciding how much you want to spend (or save) in certain areas of your budget and then tracking that spending (or savings) is one of the most important things that you can do to reach your financial goals. Finding what works for you is great. But even better? Actually using the envelope system!
Well done Eva, making money for teenagers is tough but saving it can be even tougher. Getting “Back To Cash” is sometimes the best way to go until one gets a handle on spending habits. Some people are just comfortable using cash and that’s great, whatever works is what’s important.
When I read about how financially savvy you are with your budget using cash and the envelope system it reminds me of a time when I was your age. Controlling a teenagers spending habits can be tough for parents and their teenagers especially when you want to teach money lessons to your child. The only difference was I didn’t use envelopes nor did I use an excel budget spreadsheet like I do today to track our expenses. I just tracked it all on a piece of paper and used my bank passbook for updates.
I was also very responsible with my money from a young age and this is what helped shape my financial future. Having parents who taught me about money early has helped me in ways that I can never thank them enough for. Keep up the great work and I wish you continued success on your journey towards learning more about finances and becoming financially independent.
Thanks Eva for stopping by today.
Contribution Post By: Eva Baker is a high school student passionate about preparing for her financial future and helping other teenagers prepare as well. When she isn’t rock climbing at the gym or pinning ideas for her non-existent wedding, she documents her financial journey over at Teens Got Cents. You can also find her on Facebook and Twitter.
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