Going Green – Cash Envelopes

In the last blog post I promised to share my experience with using cash envelopes and pass along some tips.  So here we go…

I learned about the cash envelope system while going through Financial Peace University (FPU) in early 2012.  It seemed like a great idea to me – in concept.  I saw how it could help “other people” save money and stay within budget, but I wasn’t convinced it would make a big difference in my life.  You see, I’m naturally boring.  In FPU we learned about two natural tendencies everyone has.  We are either a nerd or a free spirit.  We are either a saver or a spender.  I’m a nerd and a saver.  Boring!  A nerd likes doing the budget and tracking all expenditures.  A saver likes to see her saving accounts grow more than having an expensive pair of shoes.  So, I felt keeping track of expenditures during the month and inputting it into my fancy spreadsheet (nerds love, love, love spreadsheets) would be enough for me to keep my spending in line.

But, in April 2013 I attended Dave Ramsey’s Financial Counselor Training.  I loved it and knew counseling others was something I really wanted to do.  It hit me that if I was going to suggest to “other people” that using cash envelopes was the way to go, I needed to try it for myself.  So, in the beginning of May, I did our monthly budget, went to the bank, took out some cash, and loaded up some envelopes.  I started with just envelopes for groceries, restaurants, small household items, and fun money.  My biggest struggle that first month was remembering to actually use the envelopes.  I was so conditioned to pull out the debit card.   It took the first three months to really get comfortable with it and work out some kinks, but now I really like it and can’t imagine going back to my old swiping ways.

Here’s what I like about it…

• Tracking my spending is sooooo much easier.  I don’t need the memory of an elephant to keep up with how much money is left in each category.  I don’t have to save receipts or constantly check my debit card transactions and remember to input them in the spreadsheet.  I just look in the envelope and count the cash. As nerdy as I was, before using envelopes there were times where I went over a few dollars here and there because I didn’t track well enough.  Those few dollars can really add up over time.

• I spend less.  Why? When I go through the act of counting out cash to pay the bill, I notice and remember the total amount.  When I swipe and sign, I see the total, but it doesn’t sink in.  Knowing I’ll have to count out the cash affects my decision process while I’m shopping or ordering lunch.

• My four year old sees me using cash, not the magical swipe card.  He sees that it takes money to purchase things.  I had a friend tell me her six year old wanted something at a store one day and when she told him she didn’t have money for it, his reply was “you don’t need money mom, just use your credit card.”  Ugh.

• I’m never stuck without cash for those few places that don’t take cash like a farmers’ market or parking at a sporting event.

• Less swiping means less risk of fraud.  Remember the issues Target had last Christmas with credit and debit cards?  Not an issue for me.  I used cash.

Ready to give cash a try?  Here are some tips.  Some I figured out on my own; others are from friends.

• It’s ok to start small, just pick two or three budget categories, if you want.  But if you’re like me you’ll want to add more envelopes over time.

• There are many ways to keep your cash separated.  Figure out what works best for you.  A popular way is to use an envelope system wallet available at www.daveramsey.com.  (I get nothing for that plug, wish I did.  :-))  It’s what I use.  I color-coded mine with tape to make it easier to find the right envelope and it prevents the envelopes from ripping.  A friend uses a simple coupon binder.  I love that idea; I might even try it.

• For the guys, I’m guessing carrying around a big wallet or coupon binder just isn’t your thing.  There are options for you too.  If you’re married and your wife does most of the shopping, you might be ok with Dave Ramsey’s method or a variation thereof.  He carries cash in his front pocket for G-E-M – gas, entertainment, miscellaneous.  No need to split into envelopes.   Another option is to use colored bands or paper clips to keep the categories separated.  Or use the big wallet but keep it hidden in the console or glove compartment of your car.   Just take out what you need before walking into the store.

• If you’re not comfortable carrying around a full month’s worth of cash.  Don’t.  Just carry around what you need weekly or bi-monthly.

• Paying cash at Wal-Mart or Target can be a bit of challenge sometimes because they sell everything – food, clothing, household, gifts, etc.  How I handle this depends on the specific situation that day.  I might pay cash out of the envelope that is the highest amount, and then when I get to the car “pay back” that envelope from the other envelopes.  I might split my purchases into two transactions at the register.  I might do a combination of both.  Regardless, it’s not that big of a deal, I promise.  It may seem awkward at first, but it really makes you pay attention to your purchases, which is the whole point!

One last point about cash envelopes, just like with budgeting, I was worried it would feel restrictive.  But now that I’m using them I don’t feel that way at all.  I feel they help me make better choices – no impulse purchases I’ll regret later.   Do we really need that box of cookies?  Won’t the $10 bath mat look just as nice as the $30 one?  As it turns out, there are plenty of times there’s a little cash left over at the end of the month for a treat of some kind.  That little treat is so much more satisfying knowing I can enjoy it guilt free – knowing it’s not stealing from the rest of our budget.

Are you already using cash envelopes?  Have any advantages or tips to add?  If you’re not using envelopes, are you ready to give it try? Why or why not?