Cash Envelope System

(This is the final post in the Dollars for Donuts series. Click to read the first and second posts.)

As I'm in the checkout line, I'll occasionally get stares or comments on what exactly my wallet is. To conclude this three-part series about financial stewardship, I'll be taking you on a tour of our cash envelope system.

What I love about it is how simplistic it makes budgeting. When the envelope is out of money, you are done spending. There's no guessing, adding and subtracting from your bank statment, or wondering if you have enough. Simply look inside and plan accordingly.

Upon hearing that this is our budgeting method, these are some FAQs I receive and my reply to them:

Do you use cash for everything?

No–we use a hybrid system of cash and debit card (still budgeting every single dollar, though).

We use our debit card for things like fuel and work expenses. The categories we use cash for are:

  • Groceries: this is strictly for food and drinks, (weekly meal plan ingredients, pantry staples, coffee, etc.).
  • Home: items such as toilet paper, paper towels, aluminum foil, cupcake liners, cleaning supplies, sponges, laundry detergent and dish soap fall under home.
  • Cosmetics: shampoo, makeup, deodorant, toothpaste, feminine products, nail polish, etc. Some people have a separate haircut category, but since I cut my husband's hair and only get my own done about twice a year, we didn't find it necessary for us.
  • Entertainment: going out to eat, grabbing a coffee, seeing a movie, putt-putt golf, concerts–mostly anything we do for fun/date night/spending time with friends, other than traveling.
  • Personal allowance: This is a must for every one, married or single. What's expected to come from our personal envelope are things like clothes, iTunes music, hobbies, individual lunch dates with friends (will sometimes split between entertainment and personal), etc. For couples, this will save you from a great deal of fights and tension over your wife buying yet another sweater or your husband getting another piece of technology. (These are totally hypothetical of course).
  • God envelope: What this is not is our tithe to our church or giving to missions and other organizations. This is separate money set aside to bless people as we feel God leading us to–buying a giftcard for a stranger, giving groceries to someone who needs them, etc. Intentionally setting aside money to spontaneously bless others.

How do you organize the envelopes?

When we first started out, good ol' fashioned white business envelopes kept us organized. Within a couple months we upgraded to Dave Ramsey's envelope wallet for $20. (He often has sales and free shipping offers, so wait for those!) Until December of 2013, that was the wallet system I used. After several months you'll need to purchase a refill pack of envelopes, as you write on them and they fill up.

Then for Christmas, my mom-in-law got me the Sistine Chapel of cash envelope wallets–this beauty from Erica's Etsy shop, Reis Peices. The envelopes are much more durable, have zippers so loose change doesn't fall out and is just prettier all around. (This is obviously for the ladies out there). Note: this wallet is not necessarily for those just starting out in budgeting as it is more expensive.

While it can get a little on the bulky side, it holds all six of the cash envelopes I carry everywhere, my debit and rewards cards, checkbook and a zipper pocket for change and coupons. It's like the gold medal of budgeting.

Erica is graciously offering my readers free shipping on their order from her shop! Check out the different envelope options. During checkout, enter the code FoRFree14 and patiently await your mail delivery.

Erica Reis of ReisPeices on Etsy

Erica Reis of ReisPeices on Etsy

What if you're buying things in multiple categories at once?

Typically this happens at the grocery store. You're buying food, paper towels, and shampoo. If available, I'll always do self-checkout, that way I can ring out one category and move on to the next without pestering the cashier. When it's not an option and the lines aren't long at the store, I'll ask the cashier if I can do two separate transactions (even if I have more categories than that). Groceries will be one transaction and then I combine home and cosmetics. Pay for all the food from grocery and then use either home or cosmetic money to pay for it all.

For example: First checkout = $63 in food. Pay for it all from the grocery envelope. Second checkout = $28 in home and cosmetics combined; $8 from home and $20 from cosmetics. You pay for it all out of cosmetics, because that was where most of it came from. When you get home, you'll take $8 from home and put it into the cosmetic envelope.

This is where it's critical that you record your transactions on the envelopes as soon as you get home, so you don't forget what goes where.

Aren't you afraid of carrying around all that cash?

Initially, yes. Now, no. In reality, there's not as much cash as you may anticipate. On payday is when it's at its highest and for us that means the max I'd have in my wallet is $375. While that may seem like a lot, the grocery money is usually spent in part that day.

This is how I look at it–if I wasn't using cash, I'd likely be spending way more than $375 every two weeks. Also, you have that emergency fund already built up, right? So if someone were to steal your wallet, you'd be able to make up for what was taken.

Always remember the "why" behind why you're doing it. When it gets difficult and you want to throw in the towel, remember that we are God's money managers and this is a great step in faithfully stewarding what He's given us.

If you have more questions on the specifics of using the envelope system or budgeting in general, let's hear them! It'll help us all think through questions or concerns we might not otherwise have addressed.