Budgeting may conjure up images of eating ramen and staying home in the dark. That does not need to be the case. Debit and credit cards make it so easy to keep spending when we should stop.
In fact, studies have found that 83 percent of people have no problem spending more when they are using cards instead of cash. By learning the cash envelop system, you can break the cycle of debt and have the peace of mind that having an emergency fund.
Research has shown that people are willing to spend more—as much as 83 percent in some cases—when paying with cards instead of cash. Part of the reason so many Americans are in debt is that there is no one denying the bliss of instant gratification.
In order to save money, you need to see and feel the money actually being spent. As a result, you can experience how treating yourself in the short-term holds you back in the long-term.
You may also be unknowingly spending way too much in certain categories, such as food and entertainment. Using cash envelopes reigns in unnecessary spending and build your emergency fund.
A few categories you might want to consider:
- Groceries
- Transportation
- Health and beauty
- Entertainment
- Emergency
You may have bills that you pay online or have automatic arrangements. To stay on track, place a notecard in your envelope with the amount you spend online written on it so you can reduce the cash amount. It may take a while to get the hang of cash envelopes and that is fine.
Get intentional with cash envelopes
Make sure to put any change back in your envelope. Once you get into the habit of using cash envelopes, you can experience financial freedom.
Without realizing it, you may be overspending when using your debit card because you cannot see the money disappearing. Most people, regardless of income, have necessary expenses. These include groceries, mortgage/rent, gas/transportation and entertainment.
Eighty percent of Americans are in some form of debt. Forty-three percent carry a balance over every month.
Once you receive a check every month from an employer or the government, allot money for groceries, daily spending and optional activities in a designated envelope.
Buy groceries with money from your cash envelopes
There has been a lot of debate as to the exact number each family member should be allotted for the week. Some say it should be $25 and others say it should be less. Regardless of what you think the right number is, the key is to be consistent.
Before you go to the grocery store, open up the fridge and cabinets to check out what you already have at home. Make a list of options and try to see if you have enough ingredients for at least two recipes. A frozen chicken transforms into tacos, pot pies or croquettes.
You can revive stale chips in the oven for soups. Strongly consider having meals assigned to each day of the week to make weekly/food budgeting and planning easier. Think Meatloaf Monday and Taco Tuesday.
Once you have made a list to take to the store, place grocery money for the week in an envelope and keep track of what you spend. If you go under, put that amount toward next week’s haul or into savings. Keep in mind that if something unexpected happens, like another pandemic or a catastrophic weather event, you will be okay if you already have an emergency fund.
Avoid daily spending as much as possible
Certain expenses are unavoidable. If you commute to work, bus fare or gas that is non-negotiable. If you already restrict food spending, also cut down on other expenses. Try to ride the bus or walk.
If you must use your car for work, give your car some TLC. Remove any unneeded weight to increase your fuel economy up to two percent , tune-ups for an extra four percent and inflate tires for an added three percent.
Explore apps like FuelFrog and Mile IQ to set a gas budget and save for your emergency fund should your car need a major or minor repair.
If the weather is too cold or hot, try not to touch the heat or air to save gas while you drive. If you feel that you cannot live without air conditioning or that daily cup of coffee from the bakery on the way to work, you might be overspending without realizing it.
Over the course of seven days, write down everything that makes you reach for your wallet. This could be the snack or soda you pick up at 2 p.m. to stay awake or the overpriced manicure you get every week instead of requesting a polish change. Once gathered, sort through your data and see which expenses need to be significantly reduced.
One soda on Friday can be your treat for the week. The designated envelop for these expenses should be around $35 a month or less. You can increase once you have reached your goals. Always be mindful which purchases are made out of boredom or convenience.
Decide on optional activities
Although you may go into budgeting with the best of intentions. There are going to be some weekends that you will not want to spend on the couch, staring at your cash envelopes. You may want to hang out with friends or explore what the city has to offer. This is 100 percent normal.
Life is not meant to be struggled through until you reach financial freedom. The very first thing to do is see which event your city hosts for free. This could be a free night at the museum once a month or a visit to a public library that has a reading hour every weekend for kids.
Make a chart of all possible events and see what works for your family. Try to put at least $25 in your entertainment envelope.
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Every penny counts when you are building your peace of mind.
