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When it comes to saving money, sometimes you need to be a little bit creative.
Saving money it’s about finding a cash flow system that works for you and you alone. However, taking advice and looking for ideas that work for other people can give you a great amount of insight and perhaps inspire you to give a particular way forward a go too.
One very useful and quite a fun way to manage your money is by using printable cash envelopes.
Bear with me, it’s a great system, but one you need to learn about to be able to see the benefits!
What is a Cash Envelope System?
We’ll talk more about how to make this work, but to simplify it down here and now, a cash envelope system is a way of managing your money and having cash in front of you, rather than using your card for everything.
You will use printable cash envelopes to keep your cash in, but you’ll break it down into cash envelope categories so your money is organised and separate.
Basically, you’re running a cash system, rather than keeping your money in your bank and using your card.
When you do that, you can easily lose track of how much you’ve spent because you can’t actually see it or feel it; it’s almost like it doesn’t exist and you’re spending air!
That’s a dangerous way to think and see money, which is why having a cash system is a good starting point for anyone who wants to really take hold of the reins on their money and grab back control.
The basics of this type of system are:
- Pay your bills using your online banking as you normally would
- Cash that is left over, i.e. money for groceries, social life, petrol, etc is drawn out of the bank and organised into envelopes
- You have several cash envelope categories and you do your very best to stick to the budget you’re going to create before you get started
You might think that having cash around the house is a security issue and surely it’s safer to leave it in your bank. Well, yes, you could argue that point, but you need to find somewhere safe and secure to keep your cash envelopes and the issue should sort itself out.
When you have cash in the bank it’s just very easy to lose track of your spending, and as a result, you end up overdrawn; whether the overdraft is arranged or not, it’s never a good thing to be in the red.
Why Does a Cash Envelope System Work?
You might learn how to make a cash envelope system, try it for a while and then decide it’s not for you.
That’s fine; not every idea is going to work for everyone, but you should at least give it a go and try it for a couple of months before making your decision.
Don’t just throw in the towel after a week because you can’t get used to it!
Overall, however, a cash envelope system works for the following reasons:
- You can actually see the money and feel it with your hands.
Psychologically that means you have more control than something that is floating around in the ether!
You’re less likely to overspend because you’ll see your cash dwindling and it won’t be a good feeling.
- It’s easier to see how much you have left because it’s there in front of you.
You don’t have to think about contactless payments you made on your card that might not show on your pending transactions and you don’t have to think about direct debits that are yet to come out.
That’s all been taken care of with your bills you’ve already paid.
What you have in your cash envelopes is to last you for the month and it’s far easier to budget that way.
It gives you control because it’s literally in your hands.
How to Make a Cash Envelope System
You need to set your cash envelope system up before you can start using it and the more attention you pay at this point, the smoother your system will run.
As with anything, you need to get the basics right in order for anything to work properly. If you notice any small hitches with your system, simply make a few changes and try again.
First things first, you need to set up a budget so you know how much cash you have and you know how many cash envelope categories you need. That will tell you how many cash envelopes you need to print out.
Now, you might think that budgeting is boring, but it’s quite the opposite.
Once you have a budget in place you’ll feel completely in control and that eliminates money-related stress straightaway. You’ll gain confidence as a result and everything will just be so much easier to deal with when it comes to your cashflow.
In the next section, I’ll explain briefly how to create a budget, but if you are really into it, I’ve written a few articles that expand more about this topic.
So, how do you start a budget?
Sit down with a calculator, a pen, paper, any bills you have, and your phone so you can log on to your Internet banking.
- Work out how much cash you have coming in every month.
It’s best not to include overtime and simply stick to your basic monthly salary. If you get any extra, that’s a bonus.
- Write down everything that goes out of your bank account every month,
E.g. the bills you pay, the debts you pay off and how much, any subscriptions and contracts you have.
- Look closely to find out if you can get rid of any of those outgoings,
E.g. do you have a magazine subscription you really don’t use? Do you have a gym membership that’s expired and you can cancel? Are you able to downgrade your phone contract for a cheaper price?
How about contacting your utility providers and threatening to go to one of their competitors? It might not sound ethical, but it tends to work in cutting your monthly outgoings because they want to keep you on their books and not someone else’s!
Once you’ve done all of this, write down your adjusted numbers so you have a total amount of outgoings.
- Subtract your outgoings from your incoming amount.
- The remaining amount is what you’re going to draw out of your bank account and use in your cash envelope system.
Before you start working out the amounts you’re going to put into each cash envelope category, you need to spend a couple of weeks doing some tracking.
This means you need to work out how much you spend roughly on certain things every week, e.g. groceries, petrol for the car, public transport, clothing, social outings, etc.
You can’t create your cash envelopes unless you know how much to put into them, but you should check whether you’re overspending anywhere too.
Once you have that information, you can create your cash envelopes. Look at your spending tracker and work out your main categories. A few suggestions include:
- Food shopping
- Petrol or transportation
- Health and beauty products
- Pet care
- Cleaning products/household
- Miscellaneous items
These are just a few suggestions to give you an idea of the types of things you should be looking at. If you don’t have children, you won’t need that particular envelope just as you won’t need the pet care one if you don’t have pets!
However, you might have a large garden you need to look after and in that case, you’ll need to create an envelope for gardening, or maybe you love to craft and it’s your personal hobby, so you’ll need an envelope for that too.
From your tracker, you’ll be able to work out how much you realistically spend on each category, but the number one rule here is to be completely realistic.
Then, you need to go to the cash machine to draw out the cash you need for the month. Obviously, practice safety when taking cash out of the machine and going home with it, but we’re pretty sure we don’t need to remind you of that!
Now comes the fun part!
Take your printable envelopes and assemble them, sticking the edges down with tape. Once you have all your envelopes prepared, write the category on the front and divide your money up into the envelopes according to the plan you’ve already created.
The next question you have is undoubtedly where to keep your cash envelopes.
This needs to be somewhere safe. It’s not a good idea to carry your envelopes around with you en masse, so invest in a mini-safe or a lockable money box.
You should only take out the money you need for that particular item and return the change to the envelope, to stop you from overspending and to keep your envelopes safe.
Avoid Taking Money Out of Other Envelopes
We get it, sometimes things happen, perhaps an unforeseen circumstance occurs and you need to borrow a little cash from another envelope to tide you over.
Whilst you should avoid doing this as much as you possibly can, as long as you can “right” the issue pretty quickly, there should be no harm done. However, you need to try and avoid it if you can.
The reason is that if you take cash out of another envelope, you’re basically “robbing Peter to pay Paul” and it’s going to have an effect on the rest of the month. As a result, you’re not stress-free as you’re supposed to be, you’re constantly chasing your tail and that’s something we’re trying to avoid!
If this is something you recognise yourself doing quite a lot, you need to sit down with your budget again and work out whether you’ve under-budgeted a little and whether your tracking was realistic or not.
It’s fine to go back and readjust things in this way; it’s better to do that than to constantly try and move money around and confuse yourself even more.
What To Do With The Cash Envelopes at The End of Month
If you have money left in any of your envelopes at the end of the month, you have reason to pat yourself on the back!
What you do with this cash is up to you, but it’s a good idea to either treat yourself to say ‘well done’ for your month’s work, or put it in a savings account and watch it grow.
For a good piece of middle ground why not treat yourself to something small and put the other half of the extra cash in the savings account; that way everyone’s winning.
Learning how to manage your money can be a trial and error kind of deal at first and it’s important to give your new system time before you decide whether or not it’s working. If you are having issues, simply look at why that might be before abandoning the idea completely.
Having a cash system rather than working with your debit card all the time certainly gives you more control and allows you to see what you have in real terms. For many, this is a great way to take control and build up money management confidence.