Grandma's Envelope System

Did you ever go over to your Grandma's house when you were little and when she needed to give you a little money, she would go over to the drawer and pull out her envelopes? She would put her grocery money into one envelope and keep some "other" cash available for fun stuff.

Why don't we use Grandma's Envelope System anymore? Are we too sophisticated now and need to use our debit and credit cards? Online banking is the rage so why in the world would we want to revert back and start using cash??

Maybe you are finally on a budget but are still be tempted to overspend. Spending with cash – instead of a debit card or credit card – is one of the best ways to stop overspending. Getting used to the cash envelope system can take a few months, so try these tips to make the transition from plastic to cash smoother.

Budget each paycheck.
Budgeting and knowing where every single dime is going this month is essential to implementing the envelope system.

Decide and categorize.
Of course, there will be budget items that you cannot include in your envelope system like bills paid by check or automatic withdrawal. However, categories like food, gas, clothing and entertainment – areas where you’re particularly tempted to overspend – work well in the envelope system. Just decide how much will go in each envelope based on your budget and watch your spending habits shape up.

When it’s gone, it’s gone.
Once you’ve spent all the money in a given envelope, you’re done spending for that category. If you go on a shopping spree and spend the $100 in your clothing envelope, you can’t spend any more on clothes until you budget for that category again. That means no visits to the ATM to withdrawal more money! And definitely no credit cards!

Don’t be tempted.
While debit cards can’t get you directly into debt, if used carelessly they can cause you to overspend. There’s something psychological about spending cash that registers more than simply swiping a piece of plastic. When spending cash becomes a habit, patterns of overspending will be broken.

Give it time.
It will take a few months to perfect your envelope system. Don’t give up after a month or two if it’s not clicking. You’ll get the hang of it and see how beneficial the envelope system is as you dump debt, build wealth and achieve financial peace!

A real budget will take about 90 days to perfect...don't get frustrated and quit. Work hard during these first couple of months and you will get used to some new spending habits!

Thank you, Dave Ramsey!