Remember when everyone paid with cash and very few had credit cards?  Me neither. My parents actually paid cash for everything & not once did I ever see them use a credit card until after I graduated high school.  Sure they had the mandatory car & home loan, but other than that; it was cash.


In today's society it's the norm to pay with plastic. Since 2008 more people have started paying closer attention to their finances and spending habits. Unfortunately, most people are still spending more than they are bringing home and those pesky plastic cards are most of the problem.


It's not entirely the credit cards that are at fault, but debit cards can be just as bad for some people.  It's been proven that when you swipe plastic at the checkout, your brain doesn't register the transaction.  In other words, it doesn't hurt to spend money.  On the contrary, you get a high from it.  A feeling of power.  A feeling that you are special.  That is until you get the overdraft notice in the mail.  How special are ya feeling now?



This is why for those who are just starting out taking control of their finances, I suggest using the cash envelope system. Want a real feeling of power and control??  Try handing the cashier cash for your purchase. That right.  Just plop down those greenbacks and enjoy the feeling of power that you have cash to pay for your purchase.  Not only do you know you have the money for the purchase, but so does everyone else standing close to you. Here are some pointers to using a cash envelope system.

Budget:

“Budget” can be a four-letter word for most people, but a budget is really nothing more than deciding  how you’ll spend your income before you actually spend a dime of it. If you’re not sure how much you spend in each budget category, track your expenses for a month and get an idea of the amount you'll need. 

Choose Your Categories:

From your budget, go through and decide what you can pay cash for.  The most common categories are: grocery, gas, personal care, clothing, entertainment, blow money, birthday & Christmas,etc.

These categories can vary and can be personalized to your families needs.  Don't worry about setting up envelopes for bills you normally mail in or pay online.  We are only worried about items that you could potentially overspend on if you use plastic.

Prepare Your Envelopes:

You've got your budget and decided on your envelope categories, now take out some regular paper envelopes and label one envelope per category. At the beginning of the month (or your pay period), withdraw your budgeted cash from the bank and separate it into the appropriate envelopes (i.e. $250 in the “gas” envelope).

As you get the hang of the envelope system, there are some really cool wallets that have envelopes in them.  One such wallet is from Dave Ramsey.  This is the one I use.  Very stylish plus has a place for your checkbook and you can order envelope refills. You can view them here.

Use Your Envelopes

Going shopping? Better take your envelope. Forgot your envelope? Better drive back home!

Whenever you spend money from one of your envelope categories, use the money from that envelope and replace it with your receipt. This will help you keep track of where your money has gone for the month.

Once It’s Gone…It’s Gone

Once you’ve spent all the money in your envelope, that's it.....you're done...no more....don't even think about it. It’s very tempting to pull out your debit card and keep right on spending. Make up your mind beforehand that once you’ve spent all the money in an envelope, you can’t spend any more money in that category until next month. That’s what makes the whole system work. It forces you to follow your budget.

This is why it's important to plan your spending, especially on groceries and gas. It really sucks to have a week left in the month and need groceries, but no more cash in the envelope.  If this happens, it means you probably need to go back and rethink the amount of money you need in that envelope.  It also means that money is gonna have to come out of another category.  You have to BUDGET.  You need more in one category means another category gets less.

(Something our government can't seem to grasp!)

Give It Time

It will take a few months to get your envelope system down. Don’t give up after a month or two if it’s still not working just right. You’ll get the hang of it and it will be so worth it once you see your debt go down and your go up…not to mention the peace of mind you’ll experience knowing you are controlling your money!



Brought to by Lifeway Personal Financial Coaching.