The Cash Envelope System: An Opinionated Look at an Old School Money Management Method

Dear Reader, 

The cash envelope system is an old-school money management method that has been making a comeback in recent years. This system involves using envelopes to track spending, and many people find it to be a more effective way to stay on the budget than using a traditional budgeting method. However, I am not personally a fan of this system- here’s why…

One of the main reasons I don’t like the cash envelope system is that it can be very difficult to stick to. Once you’ve withdrawn your budgeted amount for the month, it can be tempting to dip into other envelopes- or even worse, to take out more cash from the ATM. This can quickly lead to overspending and getting off track with your budget. Plus what’s with the cash and the envelopes? It’s 2022!

What is the cash envelope system and how does it work?

The cash envelope system is a budgeting method where you divide your money into different categories, or “envelopes,” and only spend the cash you have allocated for each category. This system can help you stay on track with your spending and avoid overspending.

To use the cash envelope system, first, decide what categories you will need to budget for. Common categories include food, gas, entertainment, and savings. Once you have decided on your categories, determine how much money you can afford to allocate to each one. Then withdraw that amount of cash from your bank account and put it into separate envelopes labeled with each category.

Whenever you need to make a purchase in one of the categories, use the cash from that envelope. Once the cash is gone, you cannot spend any more in that category until you replenish the envelope. This system can help you stay mindful of your spending and stick to your budget.

What are some of the advantages of using the cash envelope system?

One advantage of using the cash envelope system is that it can help you become more aware of your spending patterns. When you have to physically hand over cash for a purchase, it can be easier to see how much money you are really spending in each category. Additionally, this system can help prevent you from overspending in one area by limiting the amount of cash you have available for that category.

Another advantage of using the cash envelope system is that it can help you stick to your budget. If you have a set amount of cash for each category, you are less likely to overspend or make impulse purchases. This system can also help you save money by forcing you to be more mindful of your spending.

What are some of the disadvantages of using the cash envelope system?

Some people may find that the cash envelope system is too restrictive, as it can limit how much money you can spend in a day. Others may find it difficult to keep track of their spending when using cash, as opposed to using a debit or credit card. Finally, if you lose your cash, you may be out of luck! Overall, the cash envelope system may not be right for everyone. However, if you are looking for a way to stick to a budget and better manage your finances, it may be worth giving it a try.

Alternatives to the cash envelope system that might work better for you

There are a few alternatives to the cash envelope system that might work better for you, depending on your circumstances. One is the “Pay Yourself First” method, where you automatically transfer a fixed amount of money into savings each pay period, before paying any other bills. This ensures that you’re always putting some money away for yourself, even if it’s just a small amount. Then you just follow your budget- My fave is the per-paycheck biweekly budget. 

Another thing to remember is the ” Debt Snowball” method, where you focus on paying off your smallest debts first. Once that debt is paid off, you move on to the next one and so on. This can help to motivate you by seeing progress being made quickly, and can also save you money in interest payments over time.

Whatever method you choose, make sure it’s one that you’re comfortable with and that you can stick to. Otherwise, it won’t do you any good! You’ll just be a grumpy goose.