Overview of an Envelope Cash Budgeting System

• A cash envelope budget system is an old money management strategy that is making a comeback. The basics are simple. All you need to get started is a bunch of envelopes, a notebook, a pen and your paycheck. The results of the envelope cash budgeting system, though, prove that it's extremely effective. Here's how a cash envelope budget works.
  
  

Setting Up A Cash Envelope Budgeting System

• A cash envelope budget system starts with a basic budget that breaks down all the monthly household expenses into categories. The budget should also allot how much money from each paycheck the budgeter can spend in each category. The only setup required to use an envelope budget is to write the name of each category on a separate envelope.
  
  

How a Cash Envelope Budget System Is Used

• Each payday, cash your paycheck and then divide the cash among the labeled envelopes as decided beforehand. If the budget allots $150 for groceries, $150 dollars goes into the Groceries envelope. When you buy groceries, you pay for it out of the Groceries budget envelope. When there's no money left in the Groceries envelope, you can't buy any more Groceries until the next paycheck comes in. Do the same for every other category in the budget. Any money that's left in any of the envelopes at the next pay period gets added to savings.
  
  

Refinements to the Cash Envelope Budget System

• Some people get even more use out of an envelope budget system. For instance, keeping a running total of cash expenditures on the front of the envelope makes it easy to see exactly how much you've spent and how much you have left at a glance. The envelopes are also a handy way to store all of your receipts during the pay period. At the end of the pay period, file the envelopes full of receipts with your tax documents. When it's time to do your taxes, you'll have all your receipts at your fingertips, nicely organized and ready to use for itemized expenses.
  
  

Why a Cash Envelope Budget is So Effective

• A cash envelope budget makes it easy to track your spending without keeping track of all of your spending. When there's no money left in the envelope, you know that you've spent everything in your budget for that category. Many people find that after a few months, they're saving more money using a cash envelope system. One of the reasons is that a cash envelope system gives you very clear visual reinforcement for being careful with your money--you can see how much money you spend and how much you have left. In addition, it's much more significant psychologically to spend real cash money than it is to swipe a card. The act of handing over dollar bills and change has more connection to spending money because you feel it and see it.