As I stared at my budget with the glaring red negative numbers blasting into my brain, I shook my head again in disbelief. How did I do this again? Why can’t I stick to a budget? Will I ever solve this mess?
The numbers told the story and clearly showed my penchant for clothes, my voracious need to read books constantly, and my love of quality (read: expensive) skin care and makeup products.
There was no denying the fact that I was spending my way into insane amounts of debt by using credit cards. It had to change and for the better.
With the loss of my job in 2015, a less than stellar 2016 (still unemployed), and thoroughly frustrated with my debt, I decided to take the chance on a cash budget again with cash envelopes. Since I’ve attempted this before, you can surmise there’s a bit of trepidation on my part in trying this out again. I’ve tried twice before with limited success. On previous attempts, I’ve tried the jar system and the envelope system and struggled with juggling cash and sticking to a budget. But being the open minded individual I am, I’m hopeful that the third time’s the charm.
After all, I’ve adopted a simpler way of life and what could be simpler than using cash instead of silly plastic cards to manage my money. When you’re a spender, the conclusion is simple – ditch the credit cards or continue to struggle. I’m not sure about you, but I don’t like struggling over and over again at something I should have conquered, and I don’t like the accompanying stress and anxiety that goes with it.
Simple means kicking it old school and going back to basics.
For those of you that are unfamiliar with the cash envelope budgeting system, I first came across it through the jar system from Gail Vaz Oxlade. I’m a huge fan of hers and have read every book and watched every episode of Til Debt Do Us Part, Money Moron and Princess. I love her no nonsense approach, she tells it like it is. The premise of the system is to use cash only (no plastic), storing it in envelopes or jars, sticking to a budget, tracking your spending, and once the money is gone, there’s no more until next month’s budget.
Another bit of inspiration came from Dave Ramsey’s Total Money Makeover. I’ve taken the book out from the library several times and enjoy reading the stories of people in my life stage (40-something) that have won with the system and conquered their debt. It keeps me positive that I can achieve financial freedom.
So far, for the month that I’ve been using the system, I’ve seen progress and I’m excited to share the journey with you. Now I’m not getting hugely excited with my progress yet as I’ve seen this before. The challenge is to make it past 3 months using the system and to achieve true personal growth by sticking to a budget for the long-term.
What is the Cash Envelope System?
The whole premise of the system is to feel the pain of seeing cash leaving your hands. With credit cards, Apply Pay or mobile apps, there’s no pain involved. In fact, its way too easy, you can just swipe, tap, or use fingerprint ID to keep charging away. My worst nemesis was the Starbucks app! With the simple touch of your finger, you can keep adding money to your card and buying Flat White’s or Caramel Macchiato’s to your hearts content. So the cash system makes complete sense and is perfect for those of us that have trouble stopping the swiping. I mean, my generation (GenX) was the first to see credit cards. The companies would setup camp at the colleges and universities, luring us with free t shirts, mugs, and the promise of taking a vacation or buying a new car stereo before we had earned the money. All I’ve known is credit cards from age 18 on. The allure of an endless spending account was too much.
Anyways, I’ve just started the process of the cash budget on Feb 1st, but I’m already starting to see results. It’s also a lot of fun! I’ve said it before, but being on a limited budget and a cash one forces you to get creative. And who wouldn’t love being creative all the time? Even though I’m no longer earning cash back or travel rewards on all my spending, I can sleep easier at night knowing that I’m no longer treading water barely staying afloat. Now I’m making actual progress toward my debt. Progress that I can see – no more one-step forward, two steps back.
As an added bonus, since I’m not saving, any extra money at the end of the month won’t rollover to the next month; it will go towards one of two savings goals.
Goal # 1 Building an emergency fund.
Goal # 2 Saving for a new computer (my MacBook and IMac are both 8 years old, yikes!).
As part of my budget, I already make payments towards my debt, so I thought why not save for a few important things with the extra cash. It also incentivizes you to come in under budget each month!
I created a special jar (from my cash jar days), to pop all this extra money into with a special label to keep me motivated.
Creating a Budget For the Cash Envelope System
When I decided to embark on this adventure of a cash only system, the first thing I did was sit down and print out all my credit card statements for the last two months. Next, I went through with a highlighter and focused on items charged that were legitimate needs (i.e. internet bill, car insurance, etc.). Want to know what I found out? Out of all my spending, only two, count em, two transactions out of over forty (!?!) were real needs. Everything else was crap, or wants. There were things like eating out, alcohol, books, Starbucks card reloads and some clothing. I also took time to go through my business card transactions, which I found to be much more responsible than my personal card (phew!). Why did I do this? It helped me understand what my money strengths and weaknesses are.
Next, I created my cash budget on paper, because I’m a pen and paper type of gal. It was super simple to create and listed:
- my average income each month
- monthly bills
- regular spending (groceries, pet, entertainment, etc.)
- business expenses (you may or may not have this in your budget)
Getting your budget on paper will help you decide what categories to put on your envelopes. For example, I decided on Groceries, Pet, Entertainment, and Restaurants. These are the main areas where I walk into a store and purchase items. I chose not to have one for gas as I have a Costco cash card that houses the envelope money to put gas in my car. Pretty handy I must say!
Filling Your Envelopes
Okay, so you have your budget and the categories for your envelopes. Now’s the time to get some cash into them. If you’re paid bi-weekly, you’ll be making two withdrawals a month. You’ll add up your cash items in your budget and that’s the monthly amount. For me that’s $500. I withdrawal $300 the first pay of the month and $200 on the last pay. Then, I stuff my envelopes according to what I’ve budgeted in my cash budget.
Digital + Cash Budget
The key to a successful budget is figuring out what works for your specific needs.
What if your bills are auto billed to your credit card? Do you have to switch those to cash? The simple answer: NO. Because those are fixed expenses and rarely change, it’s okay to keep those bills on your credit cards. Items such as Internet, Car Insurance, Mobile Phone usually are billed to cards. The idea is to stop your discretionary spending (shopping, entertainment, eating out) from going on your cards, that’s what causes the most damage. Just remember to set aside money to pay your card each month to cover your monthly bills.
If you believe that even having your monthly bills on your credit cards will test your discipline, then pay from your account or use debit. You have to practice extreme discipline to stick with your budget.
In my case, it was easier to leave monthly bills charging to my credit card because 1) they would be paid in full each month, and 2) I have a checking account with a maximum number of withdrawals allowed.
What about online purchases?
Ah yes, nothing like online orders to throw a kink in the cash only system. I would highly recommend avoiding this altogether but some household items are cheaper when purchased online. Again, practice extreme discipline! Let’s do an example: If you have $50 in your household budget envelope and you purchase filters for your water pitcher online for $44, whether you pay with your debit card or credit card, you must take $44 from the household envelope and deposit it back into your bank account. Then enter this transaction in your spending tracker. Make sure to pay your credit card the $44 from your bank account if you paid that way.
Last, but certainly not least, I created a budget binder of printables to stay organized and keep track of my financial goals, debt repayment, budget and spending. As I use it, I’m improving it for you, my dear reader, so it’ll be out very soon for FREE for you!
Creating The Envelopes
Once you’ve figured out your budget and created your categories for your envelopes, it’s time to put together your cash system envelopes. I did oodles of research on this one, as I’m a Googler. I Google literally everything. I found a lot of templates and premade products, but sadly there was nothing that would fit Canadian money. You may or may not know but Canadian money is slightly larger than US money and made of that crazy plasticky polymer stuff.
What did I do? Well, I found a US template I really liked (I used the thinking closet’s template) and tweaked it for Canadian money.
It was a lot of fun creating them! I haven’t had so much fun in a while. It let me solve a problem and create something that everyone could use.
When deciding on the paper for the envelopes, I originally planned to use a simple white postal envelope but my mind started thinking on how motivating that would be (it’s not) and I changed my mind. I decided to grab some pretty scrapbook paper from Michael’s craft store. The idea was this – I had to feel happy about doing this and have something that looked pretty.
It would be more motivating to use if it was cheerful.
And because I have a teeny tiny coin purse for a wallet, I decided to grab a small colorful pouch from Indigo to store the envelopes in. #goals Extra motivation!
You’ll find a link in the tutorial below to a printable file you can download for FREE!
How to DIY Your Own Envelopes
Alrighty, let’s do this! It’s time to make your own envelopes! Yay! Okay, I’m way too excited about this.
- Paper, either regular or I used 12X12 Cardstock scrapbook paper
- Double sided tape or regular tape
Step One: Create a template
As a first step I printed off the template, cut it out, then traced it onto heavier paper to create a mock up or template. It’s up to you if you want to do this. I wanted a heavier template that I could trace multiple times without it getting distorted. Once you’ve determined that your template will work, trace it onto the back (white side) of your pretty scrapbook paper.
Download your FREE template here!
Step Two: Cut them Out!
Once you’ve traced your template onto all your sheets of cardstock, cut them all out. At this point, you may also want to trace or draw with a ruler your folding lines onto the white side of the paper. This makes it easier to remember where to fold in Step Three. Note: You’ll only be able to get one envelope out of each 12X12 piece of cardstock.
Step Three: Get Folding
With the white side of the paper up, use the edge of a ruler to help create the folds in your envelopes. Double check your alignment by folding the envelope up but don’t tape at this point! The trick is to see if any paper doesn’t line up. If it doesn’t either re-fold or trim off some paper with scissors.
Step Four: Assemble
Now that you’ve created the folds, it’s time to assemble. If you’re using double sided tape, put a strip of tape down each side seam and seal together. You may need to place something heavy like a book on top to get it to stay. I found that the double sided tape wasn’t strong enough to hold cardstock and had to tape them as well. Regular scotch tape or washi tape will work. Take your pick! Don’t forget to create labels! I used a sheet of cardstock and printed them off on my printer.
Congrats! You’re finished! Time to enjoy your new cash envelope system!
Going cash only is the only way to learn to stick to a budget. When you ditch credit cards, you can’t go over budget. There’s no way for you to spend more than you make. When the money in the envelopes is gone, that’s it you can’t buy anything else.
The keys to sucess:
- Go cash only, ditch the cards
- Understand your money strengths and weaknesses
- Create a budget
- Track your spending, debt repayment, and goals – I use YNAB to keep track of my money. Get a FREE month with my exclusive link!
The reward: Financial Freedom, less stress, no more painful anxiety and a much simpler life.
How about you? Have you tried a cash only budget?
P.S. Sign up below to get first dibs on the FREE budget binder printables when they’re ready!