How to Use a Cash Envelope Budgeting System

In an era of credit cards and debit cards, cash can be an anomaly. Often at the end of a month, families wonder what happened to their money. Even those on a budget have trouble knowing where they are financially. For those who follow the envelope system of budgeting, however, knowing if it's in the budget is as simple as looking in an envelope.

Instructions

Difficulty: Moderately Easy

1. Establish a budget, or use your current budget. Plan all of your monthly expenses on paper at the very beginning of the month. Find budgeting forms on Dave Ramsey's website (see Resources below).
2. Work with your spouse or significant other. Communicate with each other and agree on a budgeting plan for your family.
3. Withdraw cash from your account for the categories that are not set bills paid online or by mail. For most people, this includes food, entertainment, clothing, extra spending cash and household expenses.
4. Make an envelope for each category that will be cash-based. You can simply mark plain security envelopes with category names and store in your purse, or you can purchase special envelope budget systems. The Dave Ramsey website sells a Deluxe Envelope System featuring cash envelopes in a wallet-style enclosure (see Resources below). The investment will doubtless pay for itself, but making your own set is the most economical method.
5. Add cash to the envelopes. Follow your budget for the month. If you get paid twice a month, you can allocate half the month's allotted amounts at a time. For example, if you budget $400 for groceries per month either add the whole amount at the beginning of the month, or put $200 in on the 1st and $200 more on the 15th.
6. Spend money in your cash categories only out of the envelopes. After an envelope is empty, no more spending in that category until the next paycheck.

Tips & Warnings

• Give your cash envelope budget system time to work. It will likely take three months of dedication to see results.
• Don't be tempted to use a credit or debit card when your cash runs out. Remember your financial goals.