I thought I would share a little about the cash envelope system, including the how and the why for you here on my blog. A little back story as to how I stumbled on this system for budgeting. I say I stumbled onto this system because it was all pre wifi and I had no idea about the Dave Ramsey system, which has helped thousands of our American cousins get out of debt across the pond!

When I had my eldest, I was in my early twenties and pretty much penny-less! We were living in social housing and receiving income support. Back then child maintenance was only £10 per week, and I had an undiagnosed Asperger’s child with sensory issues. So, making money stretch to cover holidays, clothing that my child could cope with wearing, Christmas and still be able to put food on the table too.

Ok fast forward to present day and after a hiatus of using our flexible friends to pay for everything, tapping to pay and chipping and pinning, we made the decision to learn to live within our means and begin saving in earnest. We want to save a big deposit to purchase a house. We cannot do that with how we were spending up until the end of January.

Our income is split into segments. We have weekly allocations of our income which needs to cover standing orders, subscriptions and direct debits. This money is deducted from the money in hand amount and then our cash expenses are worked out from the balance. This ‘spare income’ covers our weekly cash envelopes. This is the physical money that goes into envelopes in our wallets, and when it is gone, it is gone!

Using cash is a great way to make yourself and your money accountable. Think about the last time you had a £20 note in your purse. Did you use it or did you hesitate and hand over your card instead? I know I have done that! We withdraw cash to cover petrol, tithe, kids clubs and also a personal allowance. Yes we pay ourselves a personal allowance. This is key to helping you stave off budget fatigue, the FOMO’s and any other sulks over missing out. Plus we both work our little behinds off to bring the bread and butter in, so it is only right we allow ourselves to reap the benefits of that.

Now like I said when you have a £20 note in your hand, and you have to hand that money over, it really makes you hesitate. It especially hurts if you are a very happy spender, which we are. When you allocate money to a named envelope in your purse, it has a definite affect on how your brain now registers that cash when it looks at it. So petrol money is for the car, allowance is for coffee and cake and so on. It really helps you be incredibly mindful of how much money you are or even want to spend.

Now it is not a good idea to borrow from envelopes. If you have used all your personal allowance do not touch your petrol money! It is a slippery slope and you need that money for fuel, to get to work, to earn the pennies, to fill those envelopes back up. Be firm with yourself and stick to the rule of when it’s gone, it is gone! This will teach you accountability and how to live within your means.

Now what you do with any of the excess money left in those wallets at the end of the week is up to you. I personally transfer those into my sinking funds. These are envelopes I use to sink spare cash into for things we want to do. Things like date nights, car maintenance, birthdays, Christmas and summer holiday spends. Each envelope has a target I would like to save in there, and because it is in a named envelope, the brain makes the connection to your sinking fund and so is less likely to want to empty it!

I will probably go more into sinking funds and what sinking funds we have for us in a later post.

For now we that is why we are using cash envelopes. We want to learn to live within our means, clear debt and save as much as we can.

Do you think cash envelopes would help you manage your money a little better? If so what would your envelopes be named? Let me know in the comments, as I am considering selling the cash envelopes, I make over on my Etsy shop 😊

Sophie x

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