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6 Advantages of The Cash Envelopes System

6 Advantages of The Cash Envelopes System

The power of the cash envelope system is in its simplicity.

This is how it works. At the beginning of every month, you withdraw in cash all the money you plan on spending. Then, you divvy up your money into envelopes that represent different budget categories. For example, if you’ve budgeted $100 for eating at restaurants for the month, place $100 cash into an envelope labeled “restaurants.” That’s what you’ve got to dip into when you go out to eat. You don’t have to think about it. It’s that simple!

Not convinced? Here are 6 advantages of adopting the cash envelope system!

1. It’s a great way to save money. The ultimate goal of using cash envelopes is to save money. It can be an effective system because it brings your budget out into the open and makes it tangible. It can help reduce the likelihood that you’ll break your system and overspend.

2. The cash envelope system is flexible. Regardless of your age or financial situation, the cash envelope system can help you manage your spending. Barring categories for investing or emergency savings, it empowers you to accurately track and visualize your daily expenses.

3. You can easily see where you’re overspending. Every envelope that’s empty before the end of the month is a category where you’re potentially overspending. You now know exactly where you need to cut back.

4. It helps keep your budget organized. Nothing takes the wind out of your financial strategy quite like an overly complex budget. The cash envelope system takes the guesswork out of your budgeting and let’s you know exactly how much you can spend on what categories, and how much you have left over.

5. Cash envelopes help reduce the risk of impulse purchases. Why? Because they require that all transactions are planned ahead of time. That means fewer unbudgeted and out of the blue treats, toys, and trips!

6. It’s a great way to teach your kids about money management. That’s right, the envelope system is simple enough to teach to your kids. Consider setting up envelopes to help them budget their allowance. You can even make it a fun family project and help them decorate their envelopes! Start with simple categories like saving, spending, and giving, and add more categories as time goes on.

If you need a budget that’s simple and can help save you money, cash envelopes may be for you! Identify your top spending categories, buy a few envelopes and label them, and then start filling them with cash. Let me know what results you see!


How To Make A Budget You Can Stick To

How To Make A Budget You Can Stick To

Some people love to live a life of thrift.

It’s a challenge they tackle with gusto. Shaving down expenses with couponing, hunting the best deals with an app on their phones, or simply finding creative ways to reuse a cardboard box, gives them a thrill. For others, budgeting conjures up images of living in tents, foraging for nuts and berries in the woods, and sewing together everyone’s old t-shirts to make a blanket for grandma.

To each their own! But budgeting doesn’t have to be faced like a wilderness survival reality TV competition. Sure, there might be some sacrifice and compromise involved when you first implement your budget (giving up that daily $6 latte might feel like roughing it at first), but rest assured there’s a happy middle to most things, and a way that won’t make you hate adhering to your financial goals.

Simplifying the budgeting process can help ease the transition. Check out the following suggestions to make living on a budget something you can stick to – instead of making a shelter out of sticks.

Use that smartphone. Your parents may have used a system of labeled envelopes to budget for various upcoming expenses. Debit cards have largely replaced cash these days, and all those labeled envelopes were fiddly anyway. Your best budgeting tool is probably in your pocket, your purse, or wherever your smartphone is at the moment.

Budgeting apps can connect to your bank account and keep track of incoming and outgoing cash flow, making it simple to categorize current expenses and create a solid budget. A quick analysis of the data and charts from the app can give you important clues about your spending behavior. Maybe you’ll discover that you spent $100 last week for on-demand movies. $5 here and $10 there can add up quickly. Smartphone apps can help you see (in vivid color) how your money could be evaporating in ways you might not feel on a day-to-day basis.

Some apps give you the ability to set a budget for certain categories of spending (like on-demand movies), and you can keep track of how you’re doing in relation to your defined budget. Some apps even provide alerts to help keep you aware of your spending. And if you’re feeling nostalgic, there are even apps that mimic the envelope systems of old, but with a digital spin.

Plan for unexpected expenses. Even with modern versions of budgeting, one of the biggest risks for losing your momentum is the same as it was in the days of the envelope system: unexpected expenses. Sometimes an unexpected event – like car trouble, an urgent home repair, or medical emergency – can cost more than we expected. A lot more.

A good strategy to help protect your budget from an unexpected expense is an Emergency Fund. It may take a while to build your Emergency Fund, but it will be worth it if the tire blows out, the roof starts leaking, or you throw your back out trying to fix either of those things against your doctor’s orders.

The size of your Emergency Fund will depend on your unique situation, but a goal of at least $1,000 to 3 months of your income is recommended. Three months of income may sound like a lot, but if you experience a sudden loss of income, you’d have at least three full months of breathing room to get back on track.

Go with the flow. As you work with your new budget, you may find that you miss the mark on occasion. Some months you’ll spend more. Some months you’ll spend less. That’s normal. Over time, you’ll have an average for each expense category or expense item that will reveal where you can do better – but also where you may have been more frugal than needed.

With these suggestions in mind, there is no time like the present to get started! Make that new budget, then buy yourself an ice cream or turn on the air conditioning. Once you know where you stand, where you need to tighten up on spending, and where you can let loose a little, budgeting might not seem like a punishment. In fact, you might find that it’s a useful, much-needed strategy that you CAN stick to – all part of the greater journey to your financial independence.


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