Envelope System

For our On Our Mind section in the Oklahoma Money Matters newsletter, Your Bottom Line, I wrote an article about how Dan and I have implemented the envelope system. It was released yesterday and I've had a few people comment about how helpful it was because they were thinking about moving to a cash-only system, too.

Here's the article if you're interested. You can also go here to view it in the context of our newsletter (it's on page 5) or go here to sign up to receive them directly.

Last year was a year of change for my husband and I. We had our first child and sold and purchased a new home, both of which made us take a closer look at our budget and make drastic changes to the way we handle our money.


Since last October, we’re now proud followers of the envelope system and we’re very happy with how this system has helped us stay on budget. Prior to switching to cash, I constantly used my debit card. I even charged a .54 cent coffee at one point because I never carried cash! It’s shocking how quickly expenses add up when you pay with plastic. I’d always try to keep a tally in my head, but if I thought I’d spent $40 in one day, it typically was more like $60. You always spend more with plastic than when paying with cash.

If you’re thinking about switching to a cash-only system, here are some suggestions based on my experience.

Stash a few weeks of cash to get started. If you’re serious about the envelope system, I suggest using a lump sum to pre-fill your envelopes versus starting with empty ones. Each pay period, your envelopes will grow, but if there’s nothing in them when getting started, it’s easy to feel like the system has already failed you. It’s possible that a week after starting this all-cash method, you’ll be invited to a baby shower or you’ll want to do lunch with a friend. What will happen if there’s no money in your "gift" envelope or "dining out" envelope? Pre-filling them with a couple weeks worth of cash is a good way to help you start your new system on the right foot.

Don’t switch everything to cash. If you use online bill pay, keep the money used to pay these bills in your account. Whatever we budget for our bills, we place in our savings account and then transfer funds to our checking account when we pay the bill. Also, to us, paying for gas with cash is a huge pain, so our gas expenses are placed on our credit card, which we pay off at the end of the month.

Don’t spend the change. The great thing about using cash is all the change you get from your transactions. Let’s say you pick up groceries and your total is $24.09. Hand the cashier $25 and throw that .91 cents in a jar home. Change really adds up. When your jar gets full, take it to the bank to deposit in your savings account.

I’d love to hear your thoughts about using the cash method; join the conversation on our Twitter page, @OKMoneyMatters.

For those of you looking for an Ellie birthday update, I'm working on it! Stay posted.