I have come across this new method of spending, budgeting, and saving money that I am completely in love with mainly because it is super organizational but also because it works! It is called the Cash Envelope System and here is how I make it work for me as a broke college student.
This system helps you visualize your money that way you can see it disappearing as you are spending it. I find that since we have moved to debit and credit cards it is so easy to spend money without even realizing how much you are spending and most importantly what you are spending your money on.
Here is how this system works:
1. I would write out a list of everything you spend money on (this includes bills + extra fun activities)
2. Now purge that list. Cross out the stuff you really shouldn’t be spending money on.
3. With the remaining list I want you to allocate the amount of money you would like to spend on each of these categories a month. Some categories, like your bills, may fluctuate from month to month. In these instances I would allocate an estimate of what your bill usually is from month to month, you can also guess high. It is always better to allocate more money than to be out of money.
Gas – $80
Groceries – $100
Electric – $80
Restaurants – $60
4. To get your final total of money to withdraw from your paycheck you take your monthly allowance for each category and divide it by how many paychecks you will get that month.
80 / 2 = 40
100 / 2 = 50
80 / 2 = 40
60 / 2 = 30
TOTAL : $160.00 per paycheck
5. On payday go to the bank and withdraw the amount of money you need. Be sure to ask for the appropriate amount of 20’s, 10’s, 5’s etc. that you will need to get the exact amount for each category.
Gas – 20 x 2
Groceries – 20 x 2 & 10 x 1
Electric – 20 x 2
Restaurants – 20 x 1 & 10 x 1
6. Place each allowance for each category into an envelope with that category label.
BAM! You have started your cash envelope system. This system is helpful with budgeting because it forces you to stay within your budget that you allocated yourself at the beginning of the month. If you are strictly using cash then you can’t spend more than you have in that envelope! It’s easy. It forces you to think about every purchase you make, wondering if it is worth it or not.
Here’s the kicker. Once you’ve run out of money in one envelope you are able to take from other envelopes to supplement. But keep in mind if you take from another envelope then you have less to spend in that category when push comes to shove. So you have to be smart on what is worth buying and what you can put off another week or two or even cut down in general.
When you get paid again it is time to replenish your envelopes. Before doing so empty what you have left from the previous paycheck and deposit it directly into your savings account! Money cannot carry over into envelopes! That is the key to saving!!!
For me personally, this system has been so helpful in budgeting my money and saving a little here and there. Let me know how it goes for you!