Cash Budgeting and the Envelope System Explained
The cash budget format is a great way to learn how to budget. This simple approach to a cash flow budget, including a free budget template, can help you to keep your finances on track!
Have you ever wondered about the envelope method of budgeting and how it works? The envelope system is something developed by Dave Ramsey. While he may not have invented it, he sure did polish the system. In fact, my best friend had been using this method of budgeting long before Dave Ramsey was a household name.
The envelope system is a great way to take charge of your finances and is great if you are trying to learn how to save money. It’s worked for our family, and several others that we know. Here is a guide to understanding the envelope system and making it work for you.
How to Set Up an Envelope
The cool thing about the envelope system is you don’t need to set up or use fancy envelopes. You can go to the Dollar Tree and buy a box of envelopes and use these. Keep in mind that you can go as fancy or not fancy in the envelope department.
Cash Budget Envelope Template
I created a cash budget envelope template if you are interested to print them yourself at home. Just complete the form below and I’ll send the template right to your inbox.
Envelope System Categories
Write down the different categories you are using. Before you write on the envelopes and fill them with money, it’s best to be organized. Grab a piece of paper and write down the different categories you are using. Some categories might include groceries, gas, fun, and so on.
Household Budget Template
Come up with an amount for each budget. The idea isn’t to starve your family or never have any fun, the idea is just to make sure you budget for it all. For example, you may come up with $150 a week for groceries. Don’t budget for only $75, if you spend $150. Get it? You would need to come up with an amount for each envelope.
Envelope Method of Budgeting
Write the category on the outside of the envelope. Now comes the fun part. You simply write the word “groceries” or “family fun” on the outside of the envelope. Some people like to write the budgeted dollar amount on the outside of the envelope, but you can write it on the flap of the inside for a little more privacy.
Don’t add more money to the envelope. Once your money is gone from the envelope, you can’t add more to it. Remember that. It’s so tempting to try and pull from another envelope, but don’t. The only way the envelope system works is if you do it right. Remember, only buy with the money that’s in that envelope.
Cash Flow Budget
Enjoy putting your money to work for you. Money makes the world go round, which is why it’s so important to put it to work for you! The envelope system allows you to do just that. Sometimes people spend their money before they can even budget it. The envelope system allows you to be more responsible with your money.
If you are convinced that cash-only is the way to go, maybe a hybrid budgeting approach would work better for your family. That is where you use cash for some items and then plastic for other expenses with the caveat that those items are paid off in full every month. Read more about this here: Cash Budget: Format and Example including a Hybrid Approach.
Are you using the envelope system? How is it going for you?
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