I think a major part of our success over the last seven months can be attributed to the fact that we almost always use cash for making purchases. Yes, we pay our monthly bills (mortgage, utilities, cell phones etc.) online via our checking account, but just about everything else is paid for using cash. The big expenses in this category include our grocery money and what we allot to eating out / alcohol.
It’s true: if you use cash, you tend to spend less. When you physically see the money leaving your palm, you tend to be more conscious of what you’re using that cash for.
To organize the cash in our lives each month, we use the envelope system. Simply withdraw cash at the beginning of the month (or as you get paid), fill your envelopes and you’re good to go. What may you ask are the envelopes? You know, the envelopes people use to send letters in? Those. Just label them and you’re ready to spend (wisely)! We prefer to fill them at the beginning of each month and try to save as much as possible as the month progresses, but we usually use up all the cash. Bonus: if you do have money leftover, you can A. carry it over into the next month, B. splurge and order takeout (or whatever category item the envelope is for) or C. put it toward debt!
In the grocery envelope, we rarely have money leftover. If you do the math, there’s typically 30 days to a month, which equals 90 meals. Multiply that by two because there’s two of us in our home = 180 meals. We put $400 in our grocery envelope each month. If you divide that by the 180 meals, you get $2.22 per meal. Eating healthy, real food is NOT expensive! And I follow people who get it down even lower than that! We love food, we aren’t going to take it to the next level just yet but lowering that monthly allowance. But back to the envelope system, all of our groceries are purchased with cash and I usually only make 2 trips to the market each month. We go with a list which makes it 100x easier to stay within your set limit.
For expenses that aren’t due each month – auto insurance, water/sewer, trash – I still withdraw cash and put the money into a separate envelope. That way, it’s out of my bank account and I’m not tempted to spend it on anything else. In 2018, we set up two new envelope for gifts (birthdays, weddings, Christmas) and haircuts. When the bills come due, I make a trip to the bank, deposit the exact amount of cash needed, then pay the bill electronically. It feels SO GOOD to be prepared these days! I use to dread when my car insurance payment would come due… so conveniently every six months.
Important to note: once the envelope is empty for that given month / time period, you do not refill it. If your food money is gone, you cobble together meals with what’s left in your pantry. It’s tough to get use to, especially if you’re use to running to the market every time you think of an item you’re out of or craving, but after a couple of months, you get into the routine of planning and using what’s on hand. Because I only go to the market twice a month (the first and the fifteenth), our money is usually gone mid-month. Which is tricky, especially when you run out protein powder for your daily shakes about a week in advance from the start of a new month… but the end is near.
Some other categories people have envelopes for:
- entertainment (we don’t do because the eating out / alcohol envelope is already a splurge)
- vacations (suggested for after Baby Step 2)
- beauty (included in my monthly YL wellness box budget)
- clothing (we don’t do because we don’t need new clothes)
- Random spending (we don’t do because the eating out / alcohol envelope is already a splurge)
- Doctor visits (which we don’t do because we have FSA/HSA accounts)
That’s it. Super easy! It also makes balancing your checkbook / bank account much easier because there are far less smaller transactions. And speaking of bank accounts: get in the habit of checking yours each day! It only takes a minute or so – you can scan to make sure there aren’t any mysterious charges (identity theft is a real thing) and you can check to make sure you are on track for the month. I take this time to update our spreadsheet, what I use to balance our finances. For example: if one of us uses our debit card for cash, I add that amount to the gas line in our budget and make a note of the date. Again, we only use our debit card for a handful of payments so this only takes but 5 minutes a day. I do this immediately after checking my email.
Let me know if you have any questions or need further tips / suggestions for using your envelopes. This is a technique I’ll use for the rest of my life, even when the debt is paid in full and my monthly budget adjusts. What I like most about this technique: mega cheap!