How to create your own cash envelope system. Using a cash envelope system works well, even if you think you are already good with money. It is a great idea if you go over each week, even if it is just by a little. Only having cash can eliminate that, helping you save big in the longer term.
If you are interested in why I went with the cash envelope system (and you should too) you can read about that here. But the biggest reason I went cash is because I have a massive savings goal and so even though some of my ‘leaks’ were tiny I wanted to stop them quickly!
So first of all you need to decide you categories. You can have as many as you like but I think more than 5 may make it a little tricky. I use a mini folder from Kmart for my cash, but you can use envelopes, or clips to keep your money together. I also have a coin purse for my coins. You could use separate coin purses for each category if you want. Whatever suits you.
My categories are – Groceries, petrol, entertainment, incidentals. Any leftover money goes towards savings. The goal is to keep your budget tight so you don’t have a heap left over so you can keep it in the bank and resist the temptation of spending!
Groceries this is pretty self explanatory. All meat, groceries, fruit and vegetables plus cleaning products.
Petrol this category is fortnightly and obviously for me to put petrol in my car. I put $50 a fortnight into my folder.
Entertainment is any for form entertainment or takeaway for the week. This is the only category that I carry over week to week if I don’t spend it all. At $50 it’s not enough to go out for a family dinner to a restaurant (we rarely do) so if we knew we had something coming up we would try and save previous weeks to help us out.
Incidentals this is our extra category. It’s $50 a week. Our incidentals are for expenses that come up with day to day life that don’t really have a category. For us it could be another sippy cup, or contributing to a work colleagues gift. I also put it towards ‘extras’ in the shopping if I find a great bargain that I can’t go past like reduced meat. You could also have an incidentals category for lots of little sub categories like tuck shop money or parking money etc.
I also have a ‘medical’ category that is in the budget however I don’t take cash out for that. Personally we are trying to have another baby so, the cost of going to the fertility doctor each month changes. Plus general doctors and sickness so while it is in budget, the amount can fluctuate wildly so I keep that in the bank and it is easier for the Medicare rebate as well.
On top of all these categories my husband and I are given an allowance. This goes directly into our separate accounts each week. This is fun money! It is what ever we feel like, saving it for a new outfit or hair cuts etc. It is also worth knowing this is also the first category that gets cut if we need to cut costs.
Once you have your categories and amounts sorted you then ready start you cash envelope system. The only rule is once you’re out of money – there is no more money until next week. Don’t borrow money from the following week otherwise you will be always borrowing or chasing your tail. If you must borrow money then you can borrow from another category – this is why having an incidental category is great. It provides a buffer for expenses that can not be budgeted for.
It is up to you what you should do with your left over money. You can leave it for the following money and still withdraw the full amount. Or you can withdraw a reduced amount. Or you can put it towards your saving goal – this is what we do. I save the cash for a specific reason at the moment it is spending money for an upcoming mini holiday we are going on.
So far it has been great, on average I have been saving an extra $30 -50 per week. Because I now second think every purchase. Items like takeaway or incidentals, even though they are in my budget my spending has decreased. I would love you to give cash envelopes a go and tell me if they make a difference in your spending and savings!