Want to budget like it’s 1999?
The other day, I ran up the block to my local cash-only fruit and vegetable market to buy potatoes, onions, avocados, and celery. I had $11 in my wallet and a relatively short grocery list. NBD.
The avocados were $1.29 each, the celery was $1 per bunch, and the potatoes and onions were both $0.79 per pound. Before this starts reading like a children’s mathematics problem, let’s just say I stood by the potatoes for 10 minutes, trying to figure out how to measure the potatoes without a scale nearby.
Normally, if I was paying electronically as I often do, I wouldn’t have cared. I would buy 3-6 of the best looking potatoes regardless of how much they cost or weighed.
But this time I had little room for error. What if I bought too much and went over my $11 max? How embarrassing that would be!
Well, that was quite the teaching moment – feeling all that vulnerability and anxiety until the cashier rang up a $7.94 total. (Phew!)
The experience stuck with me as I headed home. I felt proud that I was able to come in under budget and not embarrass myself at the market, although I’m still not sure what 2 pounds of potatoes feels like.
Why was is so scary to pay with cash? Why did I feel so vulnerable limiting what I could buy?
I haven’t paid primarily with cash since I was in high school. For all of my adult life, outside of these cash-only vendors, I have had the convenience of electronic plastic. Since I was 18, I either had enough in my checking account (to this day I still don’t know how I never overdrew my account) or I had a credit card to spot me the difference (ahh, that’s why).
Because of that, I get really freaked out when I have to pay with cash.
I hate not having a record of the transaction on a statement. I get overwhelmed when I receive change and my wallet gets all messy. I don’t like not being able to dispute a transaction like I could with a bank or credit card company if there was something wrong with my purchase.
But the most obvious discomfort I have when it comes to cash is that when it’s gone, it’s gone. You can’t go over budget with cash you don’t have.
That means I have to experience turning down a purchase I want because I can’t afford it rather than the more common situation I’m used to – because I don’t really want it that much after all.
Well, now that I made the cash-only method sound miserable, let me explain why you should incorporate it into your budgeting practices! (Geez, this is why I was never in sales.)
I remember hearing about envelope budgeting when I was a kid, maybe from my aunt, who still uses this method to this day. (Yeah, my aunt was envelope-budgeting before Dave Ramsey!)
I would keep my birthday money in an envelope in a drawer as I saved up for CDs or candy until it came time to go shopping, at which point I would transfer it to a very empty canvas and velcro wallet. The only plastic I had in there was my library card.
I remember knowing the total of what I was spending before I got to the register, doing the math in my head to even factor in the sales tax.
Every time I went shopping, I had to make conscious choices to not get #allthethings if I didn’t have the cash to cover it.
That discomfort is probably what led me to rely on credit cards as an adult, but enough psychoanalysis! I survived.
While the envelope system may seem like a vintage form of personal finance, I tap into that nostalgia when modern finance gets overwhelming.
It’s almost liberating to not have to monitor a bank account balance or remember to pay a charge card bill!
And you don’t have to think about it too hard – you just spend what you have until you don’t have anymore. That’s all there is to it until you earn more money.
Simple. Straightforward. Easy.
Envelope budgeting is also a great solution for creative types who need something more tangible and visible than numbers on a screen or piece of paper.
When you just can’t seem to mentally grasp the numbers, you can physically divvy up the budget, like portion control for your money!
If you’re struggling to get a grasp on your budget or just have a few leaky categories, try out these envelope budgeting steps and face your fear of boundaries!
Establish a budget.
You’ll need to have a budget in place to do this, but it’s simple. Money out must not exceed money in. You’ll keep tweaking your budget as you get more and more experienced. Just set a budget and try it out! Don’t overcomplicate it.
Determine how much you have available after you pay your bills and put money aside for savings and investments. This is the pool of money you will divvy up into subcategories of discretionary spending.
Name your subcategories.
You don’t have to make every budget category into an envelope, but you do need to break them down into “fun-sized” groups. I like to divide up subcategories by areas of spending I want to cap and track.
Cash budgeting is great for the spending at your discretion, the spending where you whip out your plastic and swipe away. I’m talking groceries, dining out, clothes, personal care and wellness, entertainment, etc.
Determine what you feel is a reasonable amount you don’t want to exceed for each subcategory and make sure it all adds up to your total pool of discretionary spending.
Envelope Budgeting With Cash
Grab your envelopes! You can fold your own with this free template I found, purchase some on Etsy, or just use paper dividers in your wallet.
At the beginning of the month (or whatever time period you budget for), fund your envelopes. If you’re stuck living paycheck to paycheck and don’t have the money yet upfront, set aside what you can. Sometimes it’s even better to fund your envelopes on a weekly or biweekly basis to help pace your spending.
Track Your Spending
You can write the transactions on the envelopes or dividers or in a master log. Consciously interact with this so there won’t be any surprises (i.e. opening up your envelope to find that it’s empty).
Check in! Always stay conscious of what the ending balances are at the end of the day. I know it sounds daunting but the more you interact with your money, the more liberating it will start to feel.
I like to round each purchase up to the nearest dollar and put the coin change in a piggy bank. Hey, that savings adds up!
Whoops! I went over budget!
Let’s say you’re out buying groceries and you have $50 left but the total comes to $60. You take $10 from your entertainment section, where you still have $50 leftover. The entertainment is now $40.
Yes, you exceeded your grocery budget but this is not an exact science. As long as your total discretionary spending does not exceed the amount of cash you’ve laid out, you’re on the right track.
Don’t beat yourself up over this! Re-read this section – I can’t stress it enough!
I’m under budget! What do I do with money leftover?
Well, this is a great problem to have! You can roll over the cash to the next month, you can deposit the cash into savings, or you can spend it on something.
Do something that makes you feel good and is aligned with your big picture goals. You can totally have spending remorse even if you come in under budget when your spending isn’t aligned with your ideals.
I can’t do this. I hate cash spending.
If you hate cash and want to use the Envelope Method virtually, you have options!
You still need a budget to establish boundaries. Budget categories are essentially virtual envelopes. Break up your categories into fun-sized groups but be careful to not be too rigid with too many categories.
While you might not have cash in your hand to divvy up, you can track and monitor your spending either manually or with an app like YNAB, Mint, of Goodbudget.
I’ve even seen some personal finance bloggers open a different bank account for each subcategory. That seems a little overwhelming to me personally, but to each their own!
The main thing is that you track your spending within the limits you set. That’s really all there is to it!
Be patient and kind to yourself.
It takes time to perfect any change in your financial systems (hence my panic attack at my vegetable market).
Switching from plastic cards to cash can be quite a shock to your system. This is okay! You’re going to slip up sometimes. Just pay attention and get back on track.
The goal of Envelope Budgeting is not to starve your spending but to guide your spending.
Set those limits based on numbers that feel good to you and help you reach the financial goals you’re after. Remember that you’re the one who sets the boundaries!