Money envelopes have taken over my life in the most overwhelmingly wonderful way

Guest post by Amy

About a year ago, my partner and I — while broke and realizing that our Christmas money budget was about negative fifty dollars — had an idea. We grabbed a few envelopes, and on each one, wrote the name of a bill, the amount it typically cost, and when the bill was due. We put the envelopes in a stack in our room, and with every paycheck, we’d take a bit out to put in the envelopes.

Safely away from our bank account, our crappy spending habits, and our sad inability to balance a checkbook, we found that getting our monthly bills paid became significantly easier. With a better grasp on our spending habits, we were able to begin saving some of our money each month, and I have since been able to set up a payment plan for an outstanding student loan. It now has an envelope on the pile along with everything else.

We tweaked the rules a bit over the last year, but have a pretty good system going now. Our bills are almost consistently paid on time now, and we are spending less and saving more.

We began talking about renewing our season passes to Cedar Point (an amazing amusement park not too far away from where we live), which would set us back about $700. I figured, since the envelopes work for monthly bills, they would certainly work for non-bill related purchases, right? I wrote out an envelope titled “Cedar Point” and stuck in on the pile with the others.

But guys, these envelopes, they are taking over my life!

I have a fear of spending a large quantity of money on anything, opting instead, if possible, to save up slowly for it. Thus began my massive stack of small purchase envelopes that now reside in a pretty purple container in my office. From season passes to the zoo to a blender, from a new pair of running shoes to our wedding, I have envelopes for every purchase I may need to make in the future.

Some of them, like a new couch, are a one-time purchase. Others are sort of an on-going saving and spending envelope, like birthdays, chore money for my daughter, and Christmas. Every paycheck I get, I take out 40 dollars and break it up into five dollar bills. And then I put a fiver in the envelopes that I feel, at the time, most importantly deserve a bit of money. Forty bucks is a very small chunk of my paycheck, so much so that it is barely noticeable in the grand scheme of things. But it is helping me to save up for many purchases big and small. I feel as though I am, at least, making an effort.

Every time I go into my office now, I look at this neat stack of envelopes, and they are a constant reminder of the things that we need and want. And a reminder that I have, miraculously, found a system that really does help me save money.

Comments on Money envelopes have taken over my life in the most overwhelmingly wonderful way

  1. I’ve heard about using envelopes, and how spending actual cash will help curb spending habits because you physically have to hand over your hard earned money. However, I’m curious how you work with the envelopes for bills that you either have to write a check for or pay online? Do you go deposit the money back into your account and then pay the bill with a check or online? I feel like I would be at the bank all the time and would end up abandoning the whole thing. I’d love some more insight into the process!

    • I use cash envelopes for groceries. When I first started I put a day’s worth of food money spread out into 31 envelopes. If I took three days worth of money to the store I had to come home with enough food to last for three days! Grocery store impulses are a weakness for me…

      I use a “digital envelope” for all of my other bills. I used the program which lets me divvy up all the money in my account into as many digital envelopes as I want. Everybody has a Christmas and Birthday mvelope so when we get those “third paychecks” in a month (twice a year) we fill up the Christmas and Birthday mvelopes. All of our bills and cards run through there and I love it!

      • Thanks for the reply, Sarah! I use Learnvest to track our household budget, and I absolutely love it! It lets me set our budget for the month (I can adjust it based on how many birthdays or holidays there will be, and any other expected purchases). Then I can track all of our spending throughout the month and see if we’re over/under in a particular category (groceries, gifts, transportation, etc.). It’s also great because it lets me set up “priority goals” like student loan and car payments. It shows me how long it will be until we’ve paid off a loan and helps me track our progress on paying down debt.

        Our biggest weakness when it comes to budgeting is definitely groceries!! I can’t believe how much we spend just to feed two mouths every month (mine and my husband’s). I’ve been trying to figure out ways to cut back, but have not yet succeeded. Maybe I ought to try your idea of daily food envelopes! Thanks for the insight 🙂

    • When we are doing well with this, we keep the needed ‘bills’ money in our checking account, transfer out the ‘long-term saving’ money to our other savings account, and get cash for everything else (groceries, shopping, going out to eat, etc.). Then, we use online bill pay or checks to pay the needed bills, and use the cash for all of the other ‘discretionary’ stuff. You would need to decide for yourself what works best for you to pay in cash and what you can pay online or checks, etc.

    • Hey there! For us, we have our automatic payments scheduled to come out around the time we get paid. So what ends up happening is that we deposit just enough for a particular bill, and cash the rest of our paychecks. It helps that our bank is practically visible from our driveway.

  2. I recently started using You Need A Budget, which is essentially a digital tool that does the same thing as envelopes. But you don’t have to have a bunch of cash lying around, which I like. You have to do a little more work of entering every transaction you make, but it’s made me much more aware of where my money’s going. Rather than feeling restrictive, I feel like I have more money to spend and to save. Having a real budget (whatever the system) is very empowering.

    • I’ve been using YNAB for a little while now and I’m starting to get in the flow of it. I knew I wouldn’t be able to keep up with daily tracking, so I set up alerts on my phone to remind me to take care of it on payday. I find myself looking forward to tracking my expenses!

  3. My mom said that this is how she budgeted everything when I was a kid. I could still totally see that working for grocery money and saving up for big purchases. My husband and I used to pull out a certain amount of cash each week at the supermarket when we bought groceries and that was our entertainment cash for the week. Any eating out, movies, or bar nights had to come from that cash. It worked for a while but we got lazy. We’ve also decided that this is how we need to save up for Christmas money next year. I don’t see how you can pay bills or student loans with it though. We have a spreadsheet where we keep track of those things. It shows how much money is coming in, how much all the bills are, when they get paid, and how much we should budget for groceries and entertainment, etc.

  4. I like the envelope system in theory, but I have the opposite issue where money in the bank is “real” money and cash is somehow extra money that’s meant to be spent. I find that having our money split into four separate accounts (monthly bills, groceries and household expenitures, emergency savings, and fun savings) works better.

  5. Are there any Quicken users still out there? Or is it just me? [crickets]

    Quicken has a feature called “Saving Goals” that operates on the same principle as money envelopes, except you don’t have piles of cash around. When you “deposit” to your savings goal, Quicken subtracts it from your checking account, making it seem like it isn’t there. It also manages the fact it hasn’t actually left your checking ( or savings ) account so when you go to balance it there are no mathematical hoops to jump through.

  6. When I worked as a tarot reader’s salary, I wanted to go to California for a healing + spiritual retreat, but didn’t think I could save for it. The place I was working at was doing really well at the time, and I got most of my money in cash, so I used the envelope system to pay for the trip. I think I probably event spent way more than I probably should, but I never had been to California before!

  7. We have a similar system, but with jars. I am a huge fan of Gail Vaz-Oxlade (she is Canadian, which is nice because a lot of financial advice is geared towards Americans, and although the differences are subtle, they do exist) and she has this whole cash-only jar system which is fantastic.

    Basically you have jars for things like “Entertainment” and “Groceries” etc. and with her budgeting tools you determine how much cash goes in each jar per week. Things like “Gifts” only get a small amount each week, but you save up over time. I used it with great success when we were super broke, and I plan to start again in January when our annual budget gets an overhaul (many things to save for and our living expenses are about to double due to a move).

    Since I find I hold onto cash tighter than “digital money” I deposit the jar money when I need to pay bills/buy groceries. Sometimes it’s inconvenient (and I have a good relationship with my bank so they don’t hold deposits for any period of time) but it also increases accountability for all those dollars and cents.

  8. I’ve never really understood money envelopes or any budgeting system that has you keep your money in cash. It’s easier to have stolen or destroyed, there’s no record keeping unless you do so manually, and it is right there to spend without any effort to go to an ATM. I understand that credit and debit cards come with too much temptation to spend, but for me cash seems like a temptation to spend and a worry to keep safe. If I was going to implement a system like this I’d use virtual envelopes (perhaps in the form of separate bank accounts for different purposes).

  9. I’ve done similar budgeting, but found I dislike managing cash. I set up an online bank account strictly for bills that happens to have budgeting tools that act like the envelopes. We live on a very tight and strict budget, but it’s allowed us to pay off student loans, credit cards, and even save for a house down payment. Budgets are lifesavers!

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